How Infinite Banking Makes Your Money Work Twice in Real Estate Investing

David Befort (00:00)
I don’t think it’s a newer concept. I think it’s a more advanced concept that not many people are exposed to. I’ve been fortunate to be kind of mentored by somebody who’s been like in that investment banking arena for decades and really understands the game of banking and understands velocity of money and understands how to structure deals that the banks really like.

So you become a partner instead of a customer.

Dylan Silver (01:59)
Hey folks, welcome back to the show. Today we’re joined by David Befort, an investor and lender in the Twin Cities focused on real estate-backed businesses. David, thanks for joining us here today.

David Befort (02:11)
Happy to be here. Thanks for having me.

Dylan Silver (02:13)
What types of deals are coming across your desk these days?

David Befort (02:18)
Really, a—most deals are investment-grade commercial real estate. So office rental properties, strip malls. We own, the company that that I’m a part of owns many of these bigger strips with say an anchor business, right? Like a Tractor Supply Company or a grocery store, and then they have all the other franchise businesses that kind of support that one. So those are great deals. Really, anything

big right now. I’m looking for potential office space in the Twin Cities that we plan to really create an in-person community around, you know, office space, eatery, and—and just gathering together.

Dylan Silver (02:57)
When we talk about—people have lots of different terminology for—for this flex space, multi-use space—you mentioned office space with—with eateries. How much of this is, value-add opportunities versus you having to do some level of development?

David Befort (03:13)
So I’m—I’m more of a—when I buy a property or when I look at a deal, I don’t assume I’m any smarter than the current owner. So I’m gonna buy the deal based on that current situation. I’m not looking at the val—of course, I’m looking at value-add, where can we add value, but I’m not even considering that when it comes to purchasing a deal. I think one mistake people make is they focus on, “Well, I can buy this, they’re not leveraging that, and they’re not optimizing that, and I know I can do that.”

I like to buy conservatively, safely, and just assume whatever they’re doing, I’m no smarter than them. And if the numbers work at that point, then great. Then—then I—I assume I can make the numbers better.

Dylan Silver (03:56)
So you’re looking at rents, you’re—you’re looking at, potentially foot traffic or—or drive-by traffic, how—how—how populated an area is, and you’re looking of course at the acquisition price, but you’re not looking at doing some type of heavy value-add, adding in if we use the—the—the multifamily terminology here, adding granite countertops and common areas in order to create an appreciation of property.

David Befort (04:22)
Yeah, I’m not necessarily looking for—to do a demo job. I want something that’s already cash flowing, revenue-producing from day one because that’s marketable. And what I’m really after, and what my company’s really after, are marketable properties. And marketable in the eyes of the bank is different than what maybe—maybe you and I think marketability is. That’s very important in the eyes of the bank. And we use banks. It’s funny, a lot of people go to banks—most of us are customers of the bank,

right? Yeah, you go there, you ask for a loan with your hand out, and—and they run you through the wringer, and—and they give you the loan. But, you know, it’s on their terms. What we do is we look for properties that the banks that we have relationships with want to hold, because every bank has a different flavor. So if you got a good banking relationship, you find out, what kind of properties do you want to hold, bank? Like I don’t care what I want to hold; I want to know what you want to hold, because what do banks do with those? They create notes. What do notes do?

Well, they create more money for the bank. So I think there’s a—there’s a big lack of—of fundamental understanding of banking in the investment world, where people don’t understand how powerful those notes are to banks. And if you can line up a deal that creates a very solid note—and what creates the most solid note is having cash reserves. So what we’re very focused on is we have large cash reserves, and then we go partner with the bank to acquire a property.

And that becomes investment-grade paper, because those cash reserves serve as a guarantee that this note will not default, that the note will be serviced for two, three, four years because of these cash reserves available.

Dylan Silver (06:06)
When—when we talk about what makes a deal enticing to a—a bank, a lot of times people will—will, like you mentioned, look at the bank and say, “This is a headache because I’m playing on their terms by their rules.” But also it’s a very defined process once you begin to understand it, just like you—you mentioned. Are there specific types of deals—let’s—let’s—take for a second the—the cash reserves out of it, although that’s important—are there specific types of deals that you’ve seen

banks be more willing to—to finance when it comes to business lending or—or commercial real estate lending?

David Befort (06:44)
I—I again, I think it goes back to, what are they—what do they want on their books? What kind of notes do they want to hold? And every bank may want something different. Some banks may want apartment buildings, you know, Class A, Class B apartment buildings. Other banks may want office buildings, you know. Other banks may want strip malls. So it’s kind of what their flavor is, and then working locally, because nobody knows the—the local market better than a local bank.

Dylan Silver (07:07)
These relationships with a local bank, right? And—and understanding the direction of that bank can therefore be important. Sometimes people don’t realize that there’s people that run these banks that need to look at their portfolio. Now, they don’t necessarily want to own the real estate, but they’d like to own the debt, right? When we—yeah. What exactly, when we talk about lending as a whole, I know that you’re involved in note creation your—yourself.

What types of—of notes are you looking to create, and is it real estate-backed a hundred percent, or are you also looking at, business notes and other capacities?

David Befort (07:45)
Yeah, great question. So I’m—I’m really into—to notes, and they gotta be the right kind of notes. And you gotta be doing that business, that—that kind of deal with the right business. And what are businesses? Well, there—it’s no more than the people that make up that business. So I’m a big, big proponent: if I can’t do a handshake deal with somebody, I’m not gonna do a paper deal with anybody. I mean, I’ve—anybody who’s been in the real estate game long enough—and I’m not saying I’m really long in the tooth in the real estate game; I did a couple years

active, flipping houses, wholesaling here in the Twin Cities. But I learned enough about the kind of people that you come across in—in the real estate world, maybe especially or specifically, that there’s—there’s a lot of people that—that you—you wouldn’t trust your—your car with, to let them take a spin around the block. That’s one of the reasons I kind of pulled myself out from the active investing like that, because I want to work with people I like.

And there’s plenty of great people in—in—in real estate investing, especially in mastermind groups. I’m a big fan of masterminds, getting around the right people, good, solid people who just want to help each other. But there are—the type of notes I like are the ones backed by real estate that’s already revenue-producing. So I’m not—there’s a lot of syndication going on. I think syndicating is—is probably better than what most people’s alternative is, which

is the stock market, right, where you have zero control, you take maximum risk, and you don’t even get all the reward. Right? You only get a portion of it; somebody else is going to get paid before you. Syndicating’s better, but what I don’t like about syndicating is that you’re still putting your money into a single asset, one deal. And if that deal doesn’t support the return, you’re not going to get your money back. The most important thing of any deal is, what’s—what’s my return

of capital, not return on capital. So many people get tied up in, “I’m gonna get 10%,” or “I’m gonna get 15%.” Like that’s—that’s secondary and a distant second to, how am I gonna get my original principal back? If

Dylan Silver (09:53)
Mm.

David Befort (09:54)
you’ve been in real estate long enough, also you’ve lost principal. And—and that’s painful, man, because you worked hard for that money.

Dylan Silver (10:03)
I think, you bring up an interesting point here, which is when we talk about note creation, people look at, well, what is the rate of return on this note? But what happens if you have to, effectively foreclose, you have to own the underlying asset and now you manage it? This is why they say, banks don’t like having to own the real estate—they’d rather own the—the—the debt. Without giving away all the gold here,

but maybe a—a nugget for us: if you had to look at, note creation as a whole and—and single-family versus, let’s say, a car wash—I’ve heard a lot of people getting into, car washes—is there a specific type of—of note that’s in your buy box or lending box these days?

David Befort (11:33)
Yeah, my buy box would be, I want a note that’s backed by multiple assets of a business. I don’t want a note that’s backed by a single venture, because, I mean, let’s talk diversification. A single venture, your note lives and dies by the performance of that one vehicle. And there’s so many variables that could go wrong to degrade the performance there, like interest rates change. Well, a lot of people, when the water receded, they were caught without any swimming trunks on

when all these rates went up, right? And I know investors who—who lost their principal—not—not just didn’t get a return, but lost their—their entire principal amount when these rates changed and the banks with commercial notes, they can come in and say, “You need to refinance.” Right? There’d

Dylan Silver (12:19)
Yeah.

David Befort (12:20)
be a higher rate, and now your numbers don’t work, and now you gotta sell, and now you gotta sell for a loss.

Dylan Silver (12:25)
There’s a lot of syndicators that ran into this issue specifically with—with variable-rate debt. And you had people, looking through rose-colored glasses, ’cause from 2012 to, let me say, somewhere around 2020, it was possible to buy a deal wrong and still make money, because people had the—the ability, due to rates and due to where the market was and due to, a lack of surplus, to still

make money hand over fist. And then you had rates double. Then you had a surplus in many markets. I’m a Texas Realtor; in—in Austin specifically, it’s kind of the problem child for what happens when there’s too much development. And then you have vacancy increase as well, so you have, brand-new Class A properties that are sitting at 80% occupancy. You can’t have that. So then they’ll be giving, concessions to the—the tenants in order to motivate people to—to move in. And when have we ever seen that?

David Befort (13:21)
Yeah. Right. Well, and the problem is, the bank is never gonna step in to help you, because all of these properties are purchased with one hundred percent debt. You might raise thirty percent from investors; the banks know that. That’s debt, and then the banks fund seventy percent—it’s a hundred percent debt. So why would a bank come in and help you out? Now, when I—when we look for properties, we’ve got cash reserves, right, that guarantee that that note won’t go bad. It can service the note for a certain number of years, which gives the bank,

really, an encouragement to, if we ever did get into a big issue, probably more flexibility on the bank’s part, because they don’t want their note to go bad. If you think about the 2008 crash, I don’t know—yeah, you—you look quite a bit younger than me, so I don’t know how much you remember about that, but there were—there were people who were living in houses without making a payment on those houses for eighteen months or more, right? And the banks didn’t foreclose on them. Why in the world would that be? Well, it’s because

the note on that house was stacked in with a bunch of other notes, and they were selling these over and over and over. And if one of those notes goes bad, then that whole stack goes bad, and the banks could no longer make money on those notes. So what did the banks do? They just let it ride; they didn’t care, which goes to show you how little your monthly mortgage payment actually matters to the bank, because the note they have is making so much more money than that

measly bit of interest that you’re paying them every month.

Dylan Silver (14:51)
I’d like to get a little bit granular and talk about this idea of diversification. You’re the first podcast guest that I think I’ve had, maybe that we’ve had as a show, talk about diversification within a note, almost like a fund in a note, right? On a granular level, does this look like, the office building and the restaurant and—and, the—the yoga studio, and then funding all that together? What does this look like on a business-by-business level?

David Befort (15:15)
Yeah, really, a business with a history, a business that has a lot of assets already in its portfolio, and those assets already have a lot of equity in them. So I don’t want assets that are a hundred percent debt, and they’re kicking off cash flow, and, yeah, that, they’re making money, they’re cash flowing. I want, if that business ever gets into a—a pickle, they’ve got enough equity that they could—they could grab all that cash to pay that note off. And they don’t want those notes to go bad, because if a note goes bad on that business,

what are the chances that that business is going to be able to keep all those banking relationships it has with all of those other properties it has, right? Like, that’s a negative on the business. So the business is—is encouraged and highly motivated to make sure those notes pay out, which is why these notes that I—I’m a part of, they—they pay out month one on a monthly basis, amortized over, say, a 60-month period, and it has nothing to do with what they’re using my money for.

Dylan Silver (16:11)
When we talk about a diversified note, the—the example that you gave about—what was it, the—the subprime mortgage tranches, right? I think that’s what it was called, right? That—that—that hits home. I think a lot of people can relate to that. But when we talk about other types of diversification, I think this may be the first time a lot of folks are—are hearing about this. Is this a newer concept, or has this been around for a while and maybe folks are more focused on single-family notes?

David Befort (16:38)
Yeah, I—I don’t think it’s a newer concept. I think it’s a—a more advanced concept that not many people are exposed to. You know, I—I’ve been fortunate to be kind of mentored by somebody who’s been like in that investment banking arena for decades and really understands the game of banking and understands velocity of money and—and understands how to structure deals that the banks really like. So

so you become a partner instead of a customer.

Dylan Silver (17:08)
The bank. Hmm. That’s a very interesting point. I think one of the common bottlenecks that I see guests of this show having is access to capital, capital partners, right? And I think oftentimes we look at this sometimes as, “I need access to capital. I’m in a kind of,” if you look at the negotiation table, “a weaker position.” But you want to be the one that’s partnering with the bank and giving them an opportunity that they actually need and that they’re looking for.

David Befort (17:38)
Yeah, you want—your job should be to let the bank make money with your note. So you give them a—a—a high-value, investment-grade note. The banks can make so much money by flipping a note or getting credit on a note and lending it out to the n person doing the next deal that that it—I, you know, I don’t know. I don’t know how many times they can leverage that over and over and over, but banks—banks

have the biggest buildings in every city for a reason. They got their name on U.S. Bank Stadium here in Minneapolis, right? They got their name on all kinds of stadiums, but they don’t like, like you said, they don’t like owning real estate, because they know how to resell money and resell notes. And that’s so much more lucrative than actually holding real estate.

Dylan Silver (18:25)
I wanna pivot here, David. Let’s talk about this idea of—of being bankable and all that this entails. I know that this is something that you have done yourself and you help folks do. On a foundational level, what does this look like?

David Befort (18:39)
So you just mentioned access to capital is every investor’s, number one. You know, the two biggest problems is finding the deal and finding the capital. So what I realized when I did my first deal in 2016—I—I—I bought my first house to flip. I used hard money to buy the house, and then I used my own capital to do the rehab on the house. Well, luckily for me, six years prior to that, somebody introduced me to a concept. And it’s,

most people know it as the infinite banking concept. And I’m a big believer in it, because this is what has made all the difference in my financial life. It’s the foundation of everything I do financially. But I started capitalizing myself from 2010 to 2016 and putting my money somewhere where it’s gonna grow guaranteed, it’s gonna earn dividends, and then it’s gonna compound uninterrupted for the rest of my life. And in 2016,

I started getting into real estate because I wanted to leave, corporate America. I went from the military to corporate America, hated it, said, “I gotta get out of here.” Real estate was to me the quickest way out, yeah, start creating an income. So I put my head down. I got busy learning about flipping houses and wholesaling. And a year and a half later, I was able to quit my job and do that full-time. Well, in 2016, I said, “Hey, I’ve been learning for six months. I gotta jump in and take action.”

So I bought my first house, started flipping it. It’s a two-month flip, no problem, in and out, make some money, move on. Nine months later, finally sold the house. So I held it for nine months. And then what I realized then, because of where I had put my capital, I was able to actually leverage it and create a personal line of credit on my reserves. So we talked about how important reserves are. I have reserves.

I got a line of credit on those reserves, and I used that line of credit to go rehab my house. And guess what? During that seven months or that nine months I was rehabbing it, I never made a payment back towards that line of credit, because the terms are all in my favor. I—I can choose when to pay it back, how much to pay it back, or not to pay it back for as long as I need. Well, so I went nine months without making a payment, and nobody was knocking on my door, sending me letters,

calling me at dinnertime saying, “Where’s the payment? Where’s the payment?” Because where my money was was inside an optimally funded and specially structured dividend-paying whole life insurance policy. Now, people hear that and they’re like, “My gosh, whole life insurance? Dave Ramsey says it’s terrible. Right? Blah, blah, blah.” People don’t understand everything that this financial product can actually do for you in your lifetime, not to mention what it leaves behind for your family when you’re gone.

It’s incredible. It creates a a personal line of credit and your money keeps compounding even while you’re using that personal line of credit. So you get your money working in two places at the same time.

Dylan Silver (21:38)
There—there’s one key point here, which I think people miss. And sometimes you hear whole life and—and you’re thinking, “Well, this person’s trying to sell me life insurance,” and so forth. And—and you hear it from someone like yourself who—who—who was not in it because you’re—you’re selling life insurance, but because you’re using it as your own bank, your own financial vehicle. The point that—that strikes me as an outsider looking in, kind of this a thousand-foot view,

is I can’t, to my knowledge, easily take a loan from my, index brokerage account, some mutual fund that I have. I have to sell that. I gotta pay taxes or put aside taxes on that, and then I have access to it. But then I have to go reinvest at a higher price point, eliminating the gains that I had. And if—if you took this infinite banking concept and replaced whole life

with some other product which doesn’t exist—let’s say an index fund that you can directly take loans out—people would be saying, like, “That product is amazing.” And—and that’s the real power behind it is you can take loans out of your fund while it grows without removing that principal investment.

David Befort (22:46)
It—it’s, and you nailed it, because anywhere else you have to sell shares, sell whatever, grab equity from a—a—a property, which is another way to do that, get a home equity line of credit or a, asset-backed line of credit or something like that. But you—you nailed it. What we get to do with this is basically, I get to live kind of like Jeff Bezos lives—on a much smaller level, of course, much sm—infinitely smaller.

But what does Jeff Bezos do when he wants to go buy a new superyacht or hold up, have a fifty-million-dollar wedding? You think he sells Amazon shares? Why would he do that? That’s his favorite asset. He doesn’t sell those shares, because then he’d have to pay taxes, and he would lose all the—the growth on those shares, right? They’re gone forever. No, what he does is leverage those shares for a loan, a line of credit, which is not taxable. And I’m sure with all the—

the collateral he has in his shares, he can basically determine whatever the terms are on that loan, right? And he pays it back. And when he pays that money back, his shares have gone up in value, so now he’s got more than what he started with when he took that loan in the first place. That’s what we do at this level.

Dylan Silver (24:00)
You mentioned something there which I—I wanna dig in here on: not taxable. So when you take a—a loan out of one of these accounts, it’s not a tax event, is that correct?

David Befort (24:12)
Right. It’s a loan. And, the tax code defines loans as non-taxable. It’s not income. Now, there are ways to be taxed, so you gotta do it—you gotta work with somebody who knows how to set these policies up to avoid it becoming like a modified endowment contract, right? And you gotta teach, somebody who can teach you how to take loans versus taking surrenders—there’s a difference. But as long as you’re just leveraging what you’ve built up, what you’ve accumulated that continues to compound, you’re just leveraging that for a loan.

There’s—there’s never a tax implication. In fact, my CPA doesn’t need to know anything about my—my life insurance cash value, doesn’t need to know anything about loans outstanding. If I go to the bank and apply for a mortgage, those loans I have out from the insurance company are not considered debt, so it doesn’t affect my debt-to-income. And guess what? All my cash value in most states in this country—Minnesota’s not the greatest for many reasons, but in life insurance also, it’s not the best protected state.

But most states in our union, that cash value is protected from creditors and from bankruptcy.

Dylan Silver (25:18)
Are there certain restrictions that—that you’re aware of? And—and I—I may be asking the wrong person here. I—I know that, there was so much we can talk about here, but are there certain restrictions that people have when it comes to how they can allocate that loan? Can they use it for funding their business for a real estate project, etc.?

David Befort (25:36)
You’re asking the right person, because that’s—I mean, that’s my main job really, is teaching people how to do that. I’m a licensed insurance producer; I’ve been teaching people this for seven years, going on eight years. And then that’s really the—the main business that I do, is—is help people design these policies, set them up, and start capitalizing themselves so that whenever they’re—they have an opportunity, I call it an opportunity fund. Like, I’m a very patient investor.

I’m not jumping on the first thing that comes by, thinking if I miss this, I’m gonna, miss out on a big, good deal. I’m—I’m very—I can be very judicious in what I invest in. And to answer your question, I can take that loan for absolutely anything I want. There’s never any questions asked. I have a contractual right to go in, and I’m first in line with the insurance company to request to get a loan—first in line because I’m actually an owner of the company.

And I’m just taking a loan against the equity that I have in the company.

Dylan Silver (26:34)
Against that backdrop, now that we know that this is a focus for you, when—when folks are looking at the—the infinite banking concept and they’re trying to decide when is the right time, at what point in the ladder of, financial security is the right time? Is it after you own the home? Is it after you’ve got the emergency fund, of course? is it—is it after you’re looking at, additional ways to finance your projects? When is the right time to start?

David Befort (27:01)
Yeah, great question. And the thing is, like to dispel a common myth, is you have to be rich to do this, only the rich people do this. I would say there’s probably a lot of wealthy people that do this, yes, but you do not need to be wealthy to do this. It’s all—you start where you’re at. That’s what I always say on my podcast—my business partner and I, we say, start where you’re at. Like, I work—I’m talking right now to a 22-year-old college grad who wants to get started,

because he understands it and he sees what this can do for him and his family over his lifetime. And he’s going to start small, but then you build from there. There’s a reason I—I started with three policies; I now own 15, because my income has gone up over time. And, one of the—why this has been—why I’m so passionate about this, and I got into the b—this business, like you said, I wasn’t in life insurance. I never grew up saying I want to sell life insurance. Like, who, I don’t want to be Ned from Groundhog Day,

if if you remember that movie. But I got into this business only because I was already practicing this concept for eight years, and I said, “Wow, this is—this is incredible.” And I was telling people about it, and I said, “You know what? I don’t really want to do real estate anymore. I want to focus on this and teach people this.” And thankfully, I had been, I’m blessed to have been introduced to this in 2010 when I was still on active duty in the Air Force flying jets.

And I started capitalizing myself. Well, 2014 rolls around, and I decide, “Hey, I’ve been in the military for 12 years now. I got eight more years to retirement, collect a pension, collect benefits, but I don’t want to be here for eight more years. I want to go do something else. I want more control over my life.” The fact that I had built up that cash reserve gave me the confidence to actually jump from the military completely and go into the civilian world. Like, that’s a difficult step, difficult, and it—it could be

pretty scary because you’ve got all the comfort, the safety net of Uncle Sam over here. You’re dealing, you’re jumping into the unknown. So I did that. And then what happened when I wanted to leave corporate America and work on my own and be self-employed and only eat what I kill? that’s another fear I had to overcome. And one of the ways that that helped me overcome that was I was able to, I said, “As soon as I have one year’s worth of salary saved up inside my policies, then I—”

I’m quitting this job. And when that happened, I quit the job. And worst-case scenario, I don’t make any money for a year, my family continues the same current lifestyle, and a year later I go back and get another corporate job making six figures, like, worst case.

Dylan Silver (29:36)
You mentioned having multiple policies. I wanna unpack that a little bit. So is—is there like a—an amount these policies will grow to, and then this is the—the maximum amount?

David Befort (29:49)
So it’s all about how much capital you have. Your capital has to reside somewhere. Most real estate investors put their money in the bank, put it in a short-term CD, maybe, whatever they need so they have access to it. They need liquidity, right? So real estate investors that I—that I know, they’re either cash-rich or cash-poor, because they’ve got cash from selling the last deal, or they got no cash because they just put it into the next deal.

So the reason I have so many policies is because I started where I was at. I said, “I can afford this much every year as, like, my savings, right? I need to save money, so I’m gonna save it over here instead of a—a savings account, a money market account.” And then as my pay went up, my income increased, I said, “Well, now I’m maxing these policies out, and now I’m still saving money in a bank. I don’t want to save money in the bank. I need to open another policy and funnel this capital over there and get it working and compounding for me.”

And that just happened time after time after time. I’ve got multiple policies on myself, a couple on my wife, and one on each of my seven kids. So you always have insurable interest if you have a a spouse or kids; you can get policies on them. If you’re not insurable, you can get as many policies as you want on yourself until you hit that limit of really, what’s—what’s your human life value, how much are you worth economically?

Dylan Silver (31:07)
Is there a minimum amount of time that needs to pass, or a seasoning period or a dollar amount, before people can start taking loans out?

David Befort (31:15)
Yeah, that’s one of the most common questions. And it depends on the company, but the companies I use is anywhere from two weeks to four weeks and you can take a loan. So you pay your premium and some cash value shows up. Two weeks later, “Hey, if I—if I have an opportunity or an emergency over here, I’m just gonna take a loan, go take care of that, and then I’ll start paying myself back however I can.”

Dylan Silver (31:39)
I like that we’re getting into the weeds here, because I think people hear infinite banking, but—but you have a real estate background, so of course it means more to us hearing it from someone who’s done it y—your—yourself. If you have a need, if you have a project, if you have a deal that comes across, if you’re like, “Hey, I want to go to the auction and buy something out of foreclosure,” how much advance notice do you need to give you the—the—the policy before you can take that money out?

David Befort (32:05)
Great question. It’s not gonna be same day. So you always need to give yourself some leeway, so there’s some friction between you and your money. And to me, that’s actually saved me some from making some bad decisions, because it’s gonna take me three days to get this money in my account. Sometimes it—it shows up within twenty-four hours, sometimes it’s seventy-two hours, but it direct-deposits into my checking account, so there is some friction. Now, what some people do, and like in my situation, if I was still actively doing the real estate directly,

what I would probably do is work with a company that would provide me a line of credit based on all of my cash value between all of my policies. So I could combine all of that up, and they’d offer me a line of credit collateralizing that. And then that line of credit, yes, I could access immediately, just like any line of credit at a bank.

Dylan Silver (32:54)
Can—can people sell their policies to other people?

David Befort (32:59)
You can, in this case, it’s not—you’re not selling a policy to the bank to get that line of credit; you’re collateralizing it. You

Dylan Silver (33:06)
Okay.

David Befort (33:07)
basically create a—there’s a—an agreement between you and the bank that you send the insurance company, and the insurance company knows you’re not allowed to take loans anymore, because all of that cash is there to collateralize this—this line of credit that you set up over here. Restrictions.

Dylan Silver (33:22)
Okay.

David Befort (33:24)
But yeah, I mean you can sell policies. Yes, there are people that do that.

I’m not in that kind of—I’m not in the business of buying insurance policies, but I mean I’ll tell you what: banks buy insurance policies from individuals. Banks, banks will buy death benefit. Like if you—you’re a big enough individual, high, high-net-worth kind of person, you can sell death benefit to banks, you can sell policies to banks. Banks are actually one of the biggest owners of whole life insurance.

It’s actually—there’s a name for it. It’s called BOLI, Bank-Owned Life Insurance. You can look it up on their books; they own billions in whole life insurance.

Dylan Silver (34:02)
When we talk specifically about the intricacies of taking your money out and—and—and getting into the weeds here, like the—the interest rate that’s assigned to that loan, is this set at the beginning when you take out the policy? Is this market-dependent? how transparent is this? Why when I’m—when I’m looking at it for the first time, would—would someone understand this? Do you have to call, yourself or—or—or understand from a second party how this works?

David Befort (34:28)
Yeah. Man, great questions. It’s like—it’s like you already understand this whole process, but you’re asking all the right questions, especially from a real estate investor’s point of view, and the interest rate matters, right? Well, so the—the insurance company, it is transparent. They’ll tell you exactly what your—your rate is. And it ag—again, it’s company-dependent. Some will flex month to month. The company I predominantly use, there’s an interest rate set for the full year of your policy. And then the next year, it rolls around, whatever the interest rate is that month

when your policy anniversary hits, that’s your rate for the following 12 months. So you can actually plan. Now, that interest rate, it does kind of parallel the, like, the Fed bank rate. It lags, but it does parallel. So when the rates go up, the life insurance interest rate necessarily needs to go up, so because that’s profit in their portfolio that they use to pay dividends back to you. So they need to make a profit on that money, right? Now, right now, a lot of companies—

it depend—again, company-dependent, but companies I like to use, they’re capped at 8%. They can never charge an interest rate to you, a loan interest rate, above 8%. So if we go back to 1980s rates where it’s in the—the high teens, you’re getting money at 8%. Right now, it’s probably somewhere between around 6% plus or minus with most companies. But when you think of it, like if you understand how lines of credit work, that six percent, it’s not amortized. It’s

it’s simple. So it calculates daily, right? It accrues daily based on the outstanding balance that day. So when you make a loan back towards that outstanding balance, it goes towards the principal, which means the next day, they’re calculating—the interest they calculate is less because there’s a less outstanding balance. So maybe six percent, but if you’re making loans back, maybe you end up paying an effective interest rate of three and a half percent.

Dylan Silver (36:21)
When folks have a current whole life policy or any type of—of policy in place and it—it—it’s not maybe, or their—or their broker isn’t compatible with—with infinite banking, can they convert it into this type of account? Do they have to sell it? Can you sell it? Is there nothing you can do, you have to get a separate policy? How does that work?

David Befort (36:41)
Yeah, great. So there’s—in real estate there’s 1031 exchanges. In life insurance, there’s something called the 1035 exchange. That’s an IRS code, so it’s 1035. You can take a like product and transfer it into another like product. So between any type of insurance product like universal life insurance, indexed universal, variable universal life insurance, which are all—people promote those for the purposes of infinite banking and—and

there may be some people listening who actually have those. I’m not a fan of those at all for so many different reasons. But I’ve—I’ve transferred, taken a lot of those where people have these policies, and we just transfer that, do a 1035 exchange over into a properly structured whole life policy, and they get to bring all of that cash over and there’s no tax implications. And so, yes, you can—you can go from one policy to another. Now, if you already have a whole life policy, a lot of people who

have whole life policies don’t even know they have cash value in there. If they’ve had them for a certain number of years, they need to go look it up and say, and see how much cash they have. They can borrow against that cash; that’s their equity they can borrow against.

Dylan Silver (37:50)
When we look at the different ways where—where people can kind of borrow from themselves, right, this strikes me as, from—from the outside looking in, again, that a thousand-foot view, like far and away the best way, if I can say that, because I’ve had so many guests come on the show, talk about the infinite banking concept. It’s not just one or two or five; it’s like dozens of folks at—at this point. It seems very protected. It’s been around for—for decades, from like a

huge societal picture. Is there a reason why, life insurance has been now tied to the ability to take out loans, and why it’s been incentivized in this way?

David Befort (38:27)
It’s always been like that. Whole life insurance has been around longer than any other financial product I’m aware of. Like, over two hundred years, whole life insurance has been in place. It used to be so commonplace that if you—every Christmas I watch, It’s a Wonderful Life, right? George Bailey and Jimmy Stewart, that old black-and-white—it’s the best, it makes me cry at the end every time. But that’s why I watch it alone. In that movie, he’s dealing with Mr. Potter. At one point, he says, “Hey, Mr. Potter,

I’ve got a life insurance policy, and I’ve got five hundred dollars of equity in it. Can I use that?” And that is something that nobody catches today, because it’s not commonplace. Back in the day when they made that movie, almost everybody had life insurance, whole life insurance. That’s where they saved their money. And that equity he was talking about is actually your cash value. It’s how much of that death benefit you own, and you have a contractual right to access that whenever you want.

Dylan Silver (39:24)
Let—let’s dispel some—some myths here, or—or just play devil’s advocate here a little bit. There—there’s people who will say things along the lines of, “Oh, if I’m getting a whole life policy, it would be better for me to—to take that money and put it in like a—a real estate IRA, a self-directed IRA. I’m gonna put it into an—an index account.” I have my own thoughts on that, but what’s your immediate kind of knee-jerk reaction to that?

David Befort (39:46)
Yeah, two things there. One, everybody wants to go back to rate of return. “Hey, what’s the rate of return of a life insurance policy?” Well, a life insurance policy is never going to win that battle, because maybe over your lifetime, a 30-year span, say, you’re going to get maybe a four to five percent return tax-free, which is not bad, right? But it’s certainly not your 10% you can get the market on average, as—as all the gurus say. So

this is not about rates of return; it’s about financing the things of life and taking over the banking function in your own life and never losing the ability to earn on that money, even when you spend it. You go pay cash for something, right? So rates of return—and then take me back, re—restate your question, because I

Dylan Silver (40:30)
You know, what—well, when folks are looking at this, and—and they’re identifying where they can allocate their money, and they’re looking at real estate IRAs versus mutual funds and so forth—

David Befort (40:41)
Yeah, well, we’re always taught to think either/or: I can either do this, or I can do that. Like, every choice is mutually exclusive. This asset is called the “and” asset for a reason, because it’s both, and it’s just a matter of sequencing. Where do you put your money first? Well, if you put it in here first into this properly structured policy, and then you take a loan against it to go do your investing,

you’ve done both. Now you have the same dollar in literally two places at the exact same—same time, and you’ve built another asset along the way, which is the permanent death benefit that you now own. That’s an asset. And that’s an asset that’s highly undervalued amongst real estate investors. I think real estate investors, if you got a big portfolio, you should have enough permanent life insurance to equal your portfolio value. So if you have a ten-million-dollar

real estate portfolio, don’t you want to be able to spin that down during your lifetime? Like, you worked hard for that. Yeah, it’s throwing off cash flow, but maybe you want to grab the equity and spin that down and go live that amazing life that you always promised your—your wife, right, that you’re—you’re going to take her on this trip to Greece and all this stuff? Like, you have the right to spin that down, because as soon as you die, all that cash, income tax-free, is coming into your—your—your heirs’ life that can replenish all of that.

Dylan Silver (42:08)
What—what happens if you miss a payment or miss a couple payments? Does this then effectively put the account into like a delinquent status, and the—the account can get shut down and you lose your money? What—what happens?

David Befort (42:21)
Yeah, that’s why it’s also important to work with somebody who understands your situation and doesn’t do a one-size-fits-all approach. It’s very tailored to what you can—what you’re capable of doing right now. And with these policy premiums, because the—the way they’re designed, there’s a lot of flexibility in there. So there’s always going to be a floor and a ceiling, and you can pay anything in between. Now, I always work, when I work with somebody, I—we figure out, “Hey, what’s the maximum we can do every year

that you’re pretty sure you’re going to be able to do, because we want to try to max this out. That’s the best thing for you.” But knowing that if hard times come—like this happened to me when I transitioned from corporate America to doing real estate, self-employed—I couldn’t pay my premiums for two years. But because I had cash value already built up, I just borrowed against my cash value to pay my premium and not think about it for another year.

And then when I was, my revenue started coming up and I could actually afford it, then I just started, repaying those loans. But I kept my policy going, and I only paid the minimum premium, which is typically going to be about half, in general, of the maximum premium. So there’s a lot of flexibility there. But as long as you have cash value there, then you can loan against that to actually cover your premium payment for you. But, you know, worst-case scenario, yeah, if you—if you miss some payments,

there’s no extra cash value, you’ve taken all the loans out, and you can’t make a premium payment, then the policy would lapse.

Dylan Silver (43:49)
We are coming up on—on time here, David. Any new projects or activities that you’re working on these days? Also, anything you’d like to mention directly to our audience?

David Befort (44:40)
Yeah, I mean, one of the—the company that I’ve helped build over the last six years, it’s not a life insurance company. That’s—these are two separate businesses. The other one is really how I put my wealth to work. Life insurance is where I accumulate my cash; this other company I—I helped found is where I put my cash to work and watch it grow. And the name of that company is CoSpark. You can check it out at CoSpark.us—C-O-S-P-A-R-K dot U-S.

It’s a—it’s a great community, you know. We have 750 members who are a part of that. And—and that’s where, you know, I—this—this note investing originated with our group, where we create these notes and we—we make these amortized payments, and—and guess what? I borrow against my cash value, put it into this note, the monthly payment comes back to me, I use it to repay my loan, I make money on my money. So that’s a great thing for people to check out. But, you know, if you want to dig in

more specifically for real estate investors into the infinite banking concept, and maybe see it from a different perspective than you’ve ever been shown it before, I’ve got a book called IBC or Infinite Banking for Real Estate Investors. It’s on Amazon. It’s also on my website for free, though—don’t—don’t go to Amazon and buy it, just download it for free from DavidBefort.com or a—a website set up specifically for real estate investors called IBC4RealEstateInvestors.com. And you can

get your hands on some—some good content. And then, you know, there’s a scheduling link if anybody wants to talk to me about that, I’m happy to. Also got that podcast that I’ve been doing for four and a half years. Like, you’ve been doing—you’ve done way more episodes than me in a year; I’ve done 230 episodes in four and a half. That’s crazy that you’done—you guys have done so many episodes. So I—I—I—I respect that big time, because it takes—being consistent is tough. But that—the—the name of our podcast is The Wealth Warehouse. And we talk all about

infinite banking. Like, you—you wouldn’t imagine that you could actually talk two hundred and thirty episodes about whole life insurance. Somehow we managed, and it’s a lot of fun.

Dylan Silver (46:47)
David, thank you so much for—for joining us here today. Thank you for your time.

David Befort (46:51)
Yeah, I appreciate it. Thanks for having me.