Bringing the 7 Principles of Prosperity to Life – Episode 003

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your hosts, best-selling 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, and we’re fortunate enough to have best-selling financial author Kim Butler with us today. How are you, Kim? Wonderful, and I’m super excited today to talk about our seven principles of prosperity again, but to use them as an opportunity filter for a particular investment so that people get a sense of what it’s like taking an investment. Now, we’re going to use one that’s fairly generic today, but we’re going to take

[00:46] an investment and walk it through the seven principles as an opportunity filter to see if this investment meets with our principles. Super, and today we’ve chosen in the world of alternative investments, and by the way, these investments are available to qualified as well as are accredited as far as well as non-accredited investors, so this is something that all of us can take advantage of, and we’re going to be talking about first lien mortgage loans, sometimes referred to as bridge loans. Again, we’ll kind of go into that a little bit, but Kim, why don’t you go ahead and take us on that? Sounds great. Yeah, I do want to throw in a couple other words. These are called first deeds of trust. They’re called hard money loans.

[01:29] They’re called first position commercial mortgages. You’re going to see a lot of various terms around them. We’ll probably use them all interchangeably today. I often will default to the term bridge loan. Sometimes they’re technically bridge loans, sometimes not. You even hear the term mezzanine financing sometimes, but basically it’s you as an investor lending your dollars to somebody else where those dollars are secured by a first position of a mortgage. It’s often a commercial mortgage and they’re typically broken up into parts and it enables you to get monthly, typically sometimes quarterly, but most often monthly cash flow again because they are mortgages and the principal is very secure because it’s backed up by first positions, not second or third.

[02:20] So we’re going to run through the seven principles of prosperity as an opportunity filter on these first lien mortgages or first deed of trust mortgages, DOTs, you’ll see that term used as well because that’s the document that’s backing it up. And as we know, the principle number one is to think. And so thinking from a prosperous mindset around these commercial mortgages, these first deeds of trust means that we have to sometimes back up a little bit and lift our heads up and open our minds to what the definition of investment is and to realize that good investments are win-wins for both parties. When you lend money to a borrower and that borrower is going to be paying double digits, it is because they as the owner of the real estate have the

[03:09] ability to earn double or even triple digits on their investment. So this is not taking advantage of anybody in any way. It is simply you thinking from a prosperous mindset, realizing that by lending money, you can become an investor. You don’t own the real estate, but you benefit from the ownership of real estate and you get great investment returns and cash flow, which we’ll cover as we continue to move on through the principles and using them as an opportunity filter. Todd, does that make think clear enough? Super. I think this is the single most important principle with the investment that we’re talking about today because the mortgage meltdown has denied a lot of investors and developers access to capital that they need in order to

[03:56] be able to pull off condo projects, to renovate properties. And again, we’re staying on the commercial side, not the residential. So we’re not talking about somebody’s home that they want to live in for the next 30 years or raise their family or anything else. And from an investor standpoint, that’s important because there’s often very long delayed foreclosure processes to take somebody’s home away from them. We don’t want to be doing that. We’re talking about commercial loans. These properties are being developed with permanent financing on the other end, or there’s already buyers in mind. So we’re putting in that kind of band-aid opportunity that’s allowing the developer to get a project completed, pay us our money.

[04:42] And if everything goes well, we get a great rate of return. And if everything doesn’t go well, we get a great rate of return. That takes a different thinking in my point of view. You’re absolutely right. And it leads us right into the second principle, which is CSEE. And that’s seeing the big picture of these. So let’s talk for a minute about when things don’t go well. A lot of the providers of this type of investment actually will back up the cashflow that provides the interest rate so that if you invest your dollars and you’re relying on that cashflow to pay life insurance premiums or live on or pay your car payment or whatever it is that you might be doing with it, that cashflow is going to continue.

[05:24] And because it is commercial mortgage as opposed to residential mortgage, if a foreclosure needs to happen, which doesn’t happen very often, but obviously does on occasion, then our providers are able to step in, get that foreclosure going very quickly and get your principal back very, very quickly. In fact, on rare occasions, they actually even get you more than your principal back. So there are definitely times when there is a delay, but we have not had clients experience problems with loss of principal in this environment done this way, and that enables us to see this S E E again, principal number two, from a very big picture perspective as an opportunity for a good rate of return for cashflow, for dollars that can earn those

[06:13] low double digit numbers without risk. Got it. And again, while we’re looking at this, I just want to throw out another quick example is, you know, in the commercial world, a lot of times you’re making a loan on a several million dollar piece of property, the amount that can be borrowed against them is generally never more than 70%, usually much lower than that. But if we’re loan and money to someone on a $50,000 house, and we’re loaning at a 70% loan to value, that’s $35,000. That means there’s a $15,000 buffer to protect us and get us through the legal expenses of the foreclosure and any other damage that happens to the property. If we apply that same thing to a million dollar piece of property, we

[06:58] have a $300,000 buffer protecting our investment, even though the percentages are exactly the same, that buffer is a lot different. And because these things are done in fractions, we don’t have to put up the whole 700,000. We can buy pieces of multiple deals to spread out our risk. So our individual investment might still be the same small $35,000, but applied to multiple larger deals that protect us. Absolutely. And when we then pick up the third principle of measure, which is identifying if there are any opportunity costs associated with this investment, we can realize that that loan to value ratio, so you were talking about a 70% loan to value ratio, and we see them lower than that 30, 40, 50, 60%.

[07:52] I would say 50 and 60 is probably the most common. There are not any opportunity costs that I can identify. Now, maybe they’re out there, they may exist. We could absolutely admit that if cashflow were interrupted for a couple months, that then potentially there could be some opportunity costs. But many of our providers actually back up that cashflow so that there is no loss of cashflow if there is a delay due to a foreclosure or something like that. And again, that low loan to value ratio enables a property to be sold very quickly if that does need to happen. So principle number three, opportunity costs. I don’t see them in this product. Super. And the one thing I would challenge you though, is that not all bridge

[08:37] loans, first lien loans, whatever we want to call them, are the same. You still want to pay attention to the companies that you’re doing business with, because if you have to go to litigation to recover your money, it’s still a delay in expense you don’t want to have. So I would do your due diligence on the companies who are setting up the deals as well as the individual deals themselves. Absolutely. And inside our website at Partners for Prosperity, we have quite a bit of information about these first deeds of trust or bridge loans and hard money loans that will be beneficial to you, even if you choose to never work with us, because they’ll let you check out this arena, go look for your local

[09:21] sources, see if you can identify some of the businesses, the real estate owners out there that provide, and I’m going to roll right into principle number four here, cashflow, because principle four is flow, F-L-O-W. Sometimes that’s hard to say. Principle four is flow. And flow is why we like these investments so much, because the opportunity to have a monthly income, to have cashflow coming to you for very small dollar figures, as Todd was saying, 25, 50,000 is some of the minimums, some of them are a hundred, kind of depends on the situation, but you can get into these. So if you’re going to go check out your own local sources for these, make sure that you are being very careful that your loan to value ratios are

[10:07] very low and that there is monthly cashflow coming from the investment often in the high single digit, low double digit realm, and that you get your principal back at the end. That’s the goal of these first deeds of trust, hard money loans, first position commercial mortgages that we’re talking about. I would say just from practical note and experience with these, that monthly check coming in every month is kind of like a thermometer to tell you about how that investment is doing. And I have seen more loans default that the principal is due on the backend than the ones that pay you monthly, because it’s just a health check of how everything’s going. Would you agree with that? Absolutely. And that really picks us into principle number five, which is

[10:53] control. Because when you’re getting that monthly cashflow, you realize what is going on, you’re in control of that investment. And most of these investment timeframes are one to five years. So that’s another way that you control this investment is by having a fairly short, or we could say short to medium timeframe. These are not 30 year deals. One to five years is very common. Um, one to two years is actually fairly common. And so you control the cashflow and you can see that cashflow coming in every month, you control the timeframe, because of course you can pick your various deals and they may not work out exactly at the timeframe. You know, it might be a one year that turns into 18 months

[11:34] or something like that. This is real estate that we’re dealing with, but that’s a lot more control that you’ve got on your side of the table than other investments out there that need to be much longer term to generate that kind of cashflow. Super. And again, if, uh, if you were looking at investing at these, say five or seven years ago, what was left for private investors after subprime took the chunk out was high risk stuff. Those rules have reversed themselves now so that very nice deals are available to investors. So if it’s something you looked at once before, I’d encourage you to take another look. Again, we keep referencing partners for prosperity.com has got some great information. There’s you can sign up on the website and get some great free materials.

[12:20] And what’s number six. Number six is move. And this is a fabulous example. These bridge loans, these hard money loans, these first lien positions are causing your dollars to be moving all the time because of that monthly check that monthly cashflow is causing dollars. Now that you might even say, well, principle number four flow and principle number six move are the same, but they’re not because. What principle number six identifies is that the dollar is going through the asset and that’s the short-term nature of this asset. The one to five year timeframe enables you to put those dollars through it and come back and do other things. They are closely tied though, because obviously cash flow principle

[13:05] number four is coming to you, which is a form of movement. And that brings us right on into principle number seven, which is multiply because you can then take that cashflow and pay your car payment, your life insurance premium, your car insurance premium, or a variety or just live on it variety of other things that you can do with that movement of dollar that’s providing cashflow that will now get that asset to multiply because you could put, for example, $150,000 investment could then create a cashflow to make your life insurance premium payment as an example, which, so now we’ve got cashflow, we’ve got movement. Now we’ve got all the protection that’s available inside life insurance and a great place to store cash.

[13:52] And that is another podcast that we’ll do another day is how valuable life insurance is, is a place to store cash. And we’ll even take life insurance through our seven principles of prosperity check. But the ability for the bridge loans or the hard money loans, the first deeds of trust to get your dollars to do lots of jobs. So you’ve got your 50,000 and it’s growing, let’s just say at seven, eight, nine, 10% could be a little higher than that depends. And you’ve got your cashflow and you’ve got control because it’s only one to three or four or five years available of the dollars, the principal dollars being locked up. And you’ve got say the life insurance or the car loan or whatever else you’re using your money for in the multiplier aspect of the

[14:35] principal. So you’ve really got some optimized use of money there. Optimize means get all your dollars to do the most that they can within your control. So now we’re picking up that fifth principle and that’s what we want your dollars to have. That’s what prosperity is about is when you’re thinking from a prosperous mindset, you’re seeing the big picture, you’re measuring and reducing opportunity costs, you’re getting cashflow, you have control, your dollars are moving and consequently multiplying, getting you lots of benefits and lots of actual cashflow that you can then go and do other things. That’s what prosperity is about. That’s what we’re helping our clients do. Super. And again, we just like to point out that number one, this

[15:22] can be applied to any investment, not just bridge loans or first deed of trust, first mortgage loans. It’s the process of asking these seven questions. Looking at these seven areas. And then secondly, yes, we are showing you an example of an alternative investment at no point are we trying to say that everyone should be investing in bridge loans or that this is the only investment or the best investment that’s out there. You want to just kind of hit on that for a minute? Absolutely. And I also want to bring up the fact that these investments are available for IRA dollars as well as after-tax dollars, but they must fit in with everything else that you’re doing. And so in our work, we like to provide advice and strategy along

[16:14] with the product and advice and strategy are things that you do. They’re not things that you buy. So while this may or may not be an appropriate investment for you, it’s a great example of running through the seven principles of prosperity as an opportunity filter. And I know people ask a lot, well, should I invest? Well, that depends, of course, on what it is that you want for your money. Maybe cashflow is not important to you. And you want to focus on something else. Now we would give you advice that cashflow is always important and that you can use that cashflow to go and do other things. I think a lot of times people get stuck and that they don’t know actually what to do with that cashflow and they don’t want it just

[16:52] filtering back into their own lifestyle and getting wasted. So that’s where our advice comes in. And that’s where our fiduciary responsibility to guide you to optimize that wealth and to really seek prosperity, both in your mental thought process, as well as your physical actions with the money. And that’s the benefit that we’re providing. You can go find your own bridge loan providers, your own first deeds of trust out there. They’re out there in your marketplace, in your communities. Please. We encourage that. Go look around, see if you can find some locally and then come to us for advice on strategy. And then maybe you use the products that we have in addition with whatever you can find. Or maybe you’re not able to find anything in your own local

[17:37] environment and you turn to us for work in all 50 States where we’re applying our fiduciary knowledge, our responsibility to treat your dollars as we would our own and have your money in control of you, not us. We don’t want the control of your money. We don’t want these bridge loan providers to have control over the money. You should have control over the money. And that’s what the seven principles of prosperity does. It operates as an opportunity filter to make sure you’ve got the thinking that is necessary from a prosperous mindset, the big picture, the control, and all the other things that we’ve talked about. If you can change the way you see the world, the world you see will change. So this is OBS Moneyguide Todd Strobel, special thanks to best

[18:22] selling author, Kim Butler. And thank you all so much for listening to the Prosperity Podcast. 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. And pieces selected by artists. I chose Shopify because after experimenting with other platforms, this was undoubtedly one of the most intuitive. For me, it was important to think about where we would be in the future. All the tools to analyze sales, such as inventory management, are right there on our dashboard. Start your free evaluation at shopify.com.