S4 E16 - Leave me a LOAN

The number one issue for most people who are trying to get started in their investing career is they don't know where to get the money. And if it's not just stocks, like Newsom shared earlier, the way to start out with a hundred thousand dollar account, which is the best deal ever, honestly, if it's not that, what other loan types are available for you? That's what we're going to talk about in this episode.

I love it, Brit. Amazing. You're really setting us up for success because now we're talking about ways to access capital. One of the coolest and most fascinating pro tips on loans is you do not have to pay taxes on a loan.

Ooh, yeah. Why is that interesting?

I think it's interesting because, well, you remove one of the biggest expenses that you have.

Yeah, that's huge.

And so there's all kinds of cool loans out there. There's so many different ways and fascinating instruments available to use. And if used properly, these tools of debt can become extremely advantageous for your wealth.

Oh, yeah.

So what we're going to do is we're going to walk through just different types, ones that we've either used or ones that we've had a lot of experience with. So hit me with a really cool real estate loan of some kind.

There's all kinds. And today we're not going to go into like insane detail about each type because we want you to hear the one that's right for you and then start diving in and learning again, what are the pros, what are the cons, what are the qualifications? But even hearing the name of the type of loan and realizing that they're out there will help you on your journey. In your conversations with banks, one of the worst things people do is they limit themselves to friends, family and current relationships versus Googling and seeing what's really out there. And so your bank may not have these current loans, but you may have to go find another bank and it'll save you another $60,000 on your project. So for real estate, if you are looking to get started with renovations, let's say a rehab loan. If you didn't know, then there are rehab loans out there available. There's even FHA ones. It's called an FHA 203k rehab loan. If you're buying your own single family home as a fixer upper, then that loan is available for you. It'll take a little longer to close on that house, so just put that in your contract when you're buying it. But it saves you from having to close on the house and then try to find the money or use up all your own cash. And it's still only 3.5% down on not just the purchase, but the purchase and the rehab, which is huge.

Genius.

It's going to save you so much money. So that's huge. Other renovation loans can also be called construction loans. If it's a house you have and you want to make improvements on it, there's home improvement loans. But then again, if you've already got equity in your house, you can do what's called a home equity loan or a cash out refinance, two different things. Or you can do my favorite, which is a home equity line of credit. The reason that's my favorite is you're only paying interest on what you borrow. And so if I've only borrowed $2,000 from that line this week, I'm only paying interest on what you borrowed $2,000. Right. Even if it's a $90,000 line of credit, it's just like a credit card. You only pay interest on what you borrow. So those are huge. And the last one that I love for my people who qualify for this is a VA loan. I married a veteran and my goodness, this has got some benefits to it.

Yeah. Oh, there's tons of benefits with VA loans.

Yeah.

Hit me with some.

Best one I've found so far is zero down payment. What?

What?

And we've found somebody that doesn't have a cap on that. So it's not up to $450,000. No, it can be in the millions. Can still be in the millions with $0 down. So we get to keep our cash and invest in other places, which is huge. Love, love, love that they also get a lower interest rate than the market, which at the time of this recording, interest rates are higher than they have been in 10 years. Yeah, this is higher than they've been in 10 years. We've gotten really spoiled on interest rates in the last couple years. But based on inflation, these interest rates are really high. So we are benefiting from a little bit of a lower interest rate and zero down payment. That's good. The only con is I've only found that you can do one of these specific kind of no many down loans at a time. Now, if somebody else knows about more, hit me. I would love to learn.

Yeah, definitely.

All right, so there's other ways to access cash besides just single family homes. We just started talking about investing in real estate. What other kind of loans have you explored in getting going in your investing career.

Ooh, many. I'll hit you with one as my listener friends that you might not be familiar with. The first loan that I ever did, personal loan, I guess you would call it, was a loan against my 401k.

What? You can do that?

Yeah.

No way.

Yeah, totally. You can loan against the value before. Okay. Now, not only can you do that, but you can also loan against equity in your stock portfolio.

Really?

So let's just say, for example, your name is, I don't know, Susan. And Susan, you know, Susan wants to buy a real estate project and she has $500,000 in her 401k. She works at an electric company. You can borrow money.

She's doing great.

Yeah, absolutely. You can borrow money tax free, penalty free, against your $500,000 in the 401k.

Wow.

Now, obviously you can't buy borrow 500,000, but you could easily, easily get a loan for 100, $200,000. And that 500,000 in the 401k is collateral.

Wow.

Now, when you pay back the loan, you're paying that back too yourself.

Right.

So you're really borrowing your own money at a future discount.

Wait a minute. Why are you paying it back to yourself?

Because you're bargaining. It's yourself or against your 401k.

Who gives these kinds of loans?

The companies? Yeah.

Really?

Yeah. So, for example, the first time I did, I was with Charles Schwab. And when I worked at Nationwide Insurance, we had our fiduciary was through Charles Schwab. And so you can call Charles Schwab. It's a. They make money off of it, but it's a processing fee. So kind of like a bank. Banks don't love to do helocs, but they will because they're not making tons of money on the HELOC, but they're making whatever $500 or something in a processing fee that's pretty much the exact same thing that you're going to be doing in a 401k loan as well. Now, you can also borrow against IR, by the way. I'm not saying you should all do this. To be clear, I'm not a financial advisor, but I'm letting you all know that it's just a possibility.

Disclaimers.

Yeah, I'll throw that out there. You can borrow money from IRAs, you can borrow money from 401ks. If you have a stock portfolio, you can do equity loans. Now, this is wild. This is a really, really cool one. This is what your boy Elon Musk did when he was the richest man in the world.

Tell me more.

So around 20, 21 timeframe, he was worth, I don't make up a number. $215 billion.

Oh, okay.

Give or take. Most of that wealth was in Tesla stock.

Right.

So he takes, I think it was $100 billion and loans against the value of his stocks. Now, that money that came in, how many billions? A hundred billion.

A hundred billion.

Okay, whatever. No big deal. A large number takes this out. And that was tax free.

Wow.

Right? Tax free. Penalty free. He goes to a bank. Obviously the bank is going to say, okay, well, if you don't pay back the loan, they're going to get all of the shares.

Right.

So that's his collateral. And that's a very fantastic and extremely, extremely unique situation that can be done.

What did he need to do with that money? Just curious.

I think he bought Twitter. Oh, yeah.

Right. Yeah, he owns Twitter now. I mean, I kind of forget that sometimes I use Twitter a lot. But not only did he buy Twitter, but he monetized it. He fired almost all the employees.

Right.

So there was like, I'm gonna make numbers up. I'm not entirely sure. I think there's like 6,000 Twitter employers now there's like 600.

Wow.

So most of them got let go. Not only that, but then he implemented and a product where for $8 a month, you have Twitter verification. So you pay, you get the blue check mark, and it's $8 a month. Now, Meta ended up doing the exact same thing, Meta, AKA old Facebook. So they now you can pay for the blue check mark, and that's $15 per month. You get the blue check mark on Instagram and you get the blue check mark on Facebook. Now here's the cool part. 45 million people did that.

Wow.

Yeah. In the first week. So that is $450 million a month to their bottom line. Net. Net per month. So they increased their MRR monthly reoccurring revenue by 450 million. Now by this time next year. Yeah, per month. By this time next year or whenever this, you know, episode is listened to most actively, that'll probably be about a billion. You probably have 100 million people that will sign up for that. And I'll be a billion. Billion half monthly recurring revenue for free, added to the bottom line overnight, AKA their stock's going to go higher. In case you're wondering, another personal loan that. I've done that again, I'm not a suggestion you should do, but if you have an annuity you can borrow against annuities, you can also borrow against. Ready for this life insurance policy.

Wow.

Yeah. A lot of you are probably familiar with this one, but there is something out there called whole life. And whole life insurance gives you the opportunity to essentially have a life insurance policy that doesn't go away. So term it does go away, usually around if you get it, you have 20, 30 years and then boom, your policy is gone. The unfortunate part is once term expires, you're in your 50s or 60s, and it's a lot harder to get life insurance when you're getting closer to death. So when you're 50, 60, it's just a lot more expensive now to get health insurance or. Sorry, well, yeah, health insurance and most specifically life insurance. So if you get whole life while you're younger, I like to view it as just like a savings policy, savings account. It's nothing special, it's not great. It's not my primary vehicle of investing by any stretch of the imagination. But you can borrow against the death benefit. An example, you have a million dollar life insurance policy and you say to yourself, okay, I've been paying into this for five years and my cash value of my policy right now is $120,000. You can borrow against that cash value tax free. And that money is still going to be growing at 4 to 6% like it never was taken out. So the money's still growing and when you pay it back, you pay back yourself. Now if something tragic happens and you die while that process is out and while it's happening, your death benefit just gets subtracted by the money that you pulled out. So it'll be a million minus 100,000.

Why don't more people do this?

It's easier not to.

They just don't know about it. Is there a lot of startup fees?

Most people just don't know about it generally. And there are startup costs like anything else. I mean, it's more expensive than term by a lot. I mean most term policies are. I mean, I'm just throwing out numbers, but they're usually a hundred bucks a month. A good whole life policy is probably $1,000 a month. So there's definitely more cost to it. But again, you can pull that money out. And when you're paying back yourself, this is how you became can become a bank, right? You're your own bank at this stage. As the money gets large enough, this is what the ultra, ultra wealthy people do. The mega wealthy people don't even use banks, ladies and gentlemen. They take hundreds of millions of dollars. They'll buy hundreds of millions of dollars of life insurance that grows, by the way, guaranteed 4 to 6% per year. And they take out money against their life insurance, against the cash value. It's tax free, penalty free. And when they pay the interest back, they're paying theirselves back. They never go to a bank ever. So Oprah, Bill Gates, Ellen, they've never stepped foot in a bank in 20 years. They just borrow against these life insurance policies. Incredible, incredible wealth hack.

Yeah. That's amazing. What else you got?

Well, the VA loan thing, I'm going to bring back up to a topic because what's cool about the VA loan thing, and I know you know this, and you're the one that taught me, duh. Is you can transfer them.

Yeah.

And assume. Oh, sorry, yeah, assume. That is wildly fascinating.

So we had locked in a 2.8% interest rate, silly. In 2020. And then our friend who we didn't want to sell this house, but we, you know, can only have one of these loans at a time. We're building a new house. It's beautiful. So we're like, well, we're not just going to put this thing on the market with as good of an interest rate. So we have a lot of veteran friends and one of Jeremy's veteran friends gets to assume that loan with that interest rate and keep it at a time. Right now interest rates are at like seven and a half percent. He gets a lock in over a million dollar property at 2.8%.

Crazy.

Crazy. Lucky duck. Yeah, yeah. There's other loans though. There's lots of loans out there that are assumable. You just have to ask. It's not just va. What? Yeah, there's others. Who? My very first house that I bought at 18 years old, it was an assumable loan at 6 and a half percent interest. Nobody wanted it. But that's just something you can ask about.

Never even thought to ask that.

Well, for those who are, you know, locked in those really good interest rates in 2020. 2021, that is one way that you can sell it. So you can sell the current mortgage. Let's say it's a million dollars and you want to sell it for 1.4. If they're assuming the million dollars at 2.8% interest, they either can come up with cash or borrow money from a friend or whatever to make up the difference to be able to have that other 400,000. And then again after they close on the property and the ownership is transferred, they can Then go get a home equity line of credit and pay off their friend.

Bang.

Just saying, like, I've done it. Just saying it's totally doable, so. Totally doable. Yeah.

Super cool.

So you're at least locking in the major portion of that now. Right now at this time of recording, the world's kind of in an interesting place in real estate. You know, there's all these people who locked in great interest rates in the last couple years, and then there's all these, you know, rougher interest rates. And housing prices haven't really gone down because people like their houses and they're not really wanting to move, especially when they locked in these good interest rates. So there's still a shortage, a big, massive shortage in the market on, you know, available product. So you're not seeing that big drop in house prices sometimes in the luxury markets, you can see it. Cause again, less people qualify. One of the ways that you can, you know, put your house out there on the market and maybe charge even more for it is if you find out that you have an assumable mortgage.

I mean, that is such a. That's a mind grenade for me personally.

Yeah, yeah, yeah, you might have one.

I mean, why not? Sure. But at the same time, there's definitely going to be listeners who do. And if they wanted to sell their house, that might make it easier. Right. They could just have the loan get assumed by the buyer. That would make it extremely appealing. Absolutely. And especially if you are listening to this and you are a veteran and let's say you're like, well, I don't want to sell my house because of X, Y, Z. Well, this is now a way that you can do that. The person buying the house is still going to get that beautiful interest rate that you have. This is just such a good wealth hack.

Absolutely. Yeah, absolutely. Now, it was helpful for us to know someone to be able to walk them through that process. But you can just put a little sign in the yard that says 2.8% interest assumable mortgage. And that's what I used to do in houses. That house that was on train tracks that wouldn't sell.

You know what I did, I put a little, you know, not cardboard, but I got a little plastic sign made, stuck it in the yard and said, own this house for $600 a month or whatever it was, because people were looking 1-799- the interest rates were so low, all the renters drove by and $179,000 sounded like a lot of money to them. But $600 a month was something they were already paying. Brittany, break it down.

I am not exaggerating. Monthly payment, baby, when I tell you.

I was unaware that you could even have a cool sign in your yard.

Cool sign in your yard.

That's amazing.

Own this house.

That's crazy cool.

2.8 percentage. Let's go $600 a month.

Because a lot of times I just see the for sale signs and you have the person's picture and a face, right? Or now in Nashville, especially around my area, they're all bougie. They just have a name of the thing and a phone number. That's it. They don't even have for sale. It's just like, Dude, I've got XYZ.

Property, WhatsApp me, Instagram, message me. This is how much it costs you per month. This is how much you got to have down. This is the best loan officer. Like I. I used to have come up with it. Oh, I used to label. I used to. And I still recommend doing this if you don't want to walk around and label it like I did. You can even have a one sheeter of all the renovations you did to the house. Like brand new H vac, brand new electric, brand new plumbing, brand new roof. If not, people are just going to walk around and wonder, I don't know how old these things are. I'm just going to buy it. But if you point it out to them, it's now more valuable. But I used to sticky, not sticky note. I'd have laminated, printed off all the new things. Brand new tile. Even though you can see it, I'd still put it on there. Brand new plumbing fixtures, brand new cabinets, brand new. Show them as many things as I could possibly list. And then the summary sheet, too. And that summary sheet. As things get harder to appraise, guess where that goes. Goes to the appraiser. Now it is. Now they're not trying to discount it based on the age of the home when everything's new in it. They better give me credit and not try to discount the value of my home because I'm selling this thing. You get a contract you want to close.

I love that. That is. Is season four allowed to be my favorite season?

Yes, it is.

That was so hot. That was absolutely great. Very, very valuable information. And we're going to continue to provide more valuable information in the next episode. We will see you there. Rock.

If you didn't know, Jeremy Newsom and I are in a mastermind together with a series of other force for good entrepreneurs that's it. If you are like me or you have been searching your entire career for other people who care about their impact on people, their impact on the planet, and not just making a profit, but understanding that profit is the expansion tool of everything you get to do so you can make an even more powerful impact in your one chance on earth, then this is the right mastermind for you. Go to broketooope.com to find out more.