How Real Estate Investors Use Infinite Banking to Build & Protect Long-Term Wealth

Alex Kholodenko (00:00)
We’re going to reset in real estate in many markets, right? And as a real estate investor myself, like you said, I’ve invested in 2000 plus units across commercial real estate, in individual single-family real estate. Sometimes some deals don’t turn out to be even close to what your projected return. Right? You— I’ve had some of the investment that they’ve done, you two-X or even more, but sometimes there was a complete loss of capital.

Cody Crabb (02:01)
Welcome back to the Real Estate Pros Podcast by Investor Fuel. I’m your host, Cody Crabb, and today I’ve got Alex Kholodenko with me. Alex is a serial entrepreneur, commercial real estate investor involved in more than 2,000 units, and wealth architect, helping investors build and preserve long-term wealth. We’re going to talk about infinite banking and how it fits into a real estate investing strategy. Alex, thank you so much for coming on the show today.

Alex Kholodenko (02:25)
Thank you, Cody, for having me here. I’m excited to share my knowledge and help other people learn about this unique strategy for high-net-worth investors, real estate people. Some of them are familiar, some of them are not.

Cody Crabb (02:39)
So I’d like to hear a little more about you know, how did you get into the— the specific niche that you’re in today as kind of helping people with diversifying their portfolio and thinking differently about how they invest?

Alex Kholodenko (02:53)
Yes, I’m happy to share that with you. It’s all about trial and error. I’m one of those people that always curious about different financial strategies. I started investing in the stock market in the early 2000s. I spent a corporate career over the 20 years working in the technology sector. Originally I’m from Ukraine, but I’ve been living in Silicon Valley for 30 plus years. That’s where all the Googles and Microsofts and Ciscos and Facebooks of the world. So from then on, I’ve seen how the stock market can be very lucrative, but also very volatile, right? As we all have seen, there’s been so many dot-com bubbles. Now there’s an AI bubble, there’s a crypto bubble. So the stock market is where you can make asymmetric return, but you can also lose a lot of money.

So over time I started investing in real estate. As you know, real estate is a great wealth-building vehicle that has additional benefits of a stock market that doesn’t have those such as cash flow, tax advantages, bonus depreciations. But even that, my curiosity kind of didn’t stop there. I started to learn even more about different other strategies where you can grow your portfolio. You can diversify from real estate into other wealth-building vehicles and have income protection where you cannot lose money, right? As we all know, Warren Buffett, rule number one is do not lose money. So I found some strategies, include infinite banking that I’m gonna be talking about in more detail where you can have an upside, but you cannot lose what you have and you can supplement your retirement income, college funding. You can use it as your bank and a safety blanket where you can borrow money and grow your money ultimately as well.

Cody Crabb (04:54)
So just to kind of get some context, what are— when you say other wealth-building vehicles, can you give us a couple of examples of the kind of thing you mean? Because another thing that you— that you seem to say is that, you know, you— you help with kind of alternative investments too. So can you give us an example of kind of what some of those might be?

Alex Kholodenko (05:58)
Yes. So as part of a diversified portfolio, if you are a high-net-worth individual, pre-retiree or retiree, I think you need to have in your portfolio different wealth-building vehicles such as stocks, maybe mutual funds, maybe ETFs. Some of them may be high-risk technology stocks. If you are closer to retirement, maybe you need to start to scale down and lower your risk level and go into more defensive, dividend type of stocks. Everybody should have a little bit of exposure to real estate portfolio because typically it’s not correlated to the stock market, right? If you are still building your wealth, maybe you could consider crypto if you have a huge risk tolerance because as you know— know, sometimes those drawdowns and downside bear markets could be pretty significant. I mean, right now we are probably what, 50 to 60% of the Bitcoin. In addition to that, when I talk about diversified portfolio, infinite banking, it’s an insurance contract. It’s actually a contract that allows you to build wealth in addition to having insurance and another component, which could be a stock market. So it’s kind of a hybrid product that allows you to build wealth with a protection, with a downside protection that is, as I described, the Warren Buffett method of: you will never ever lose money by having that product.

Cody Crabb (07:28)
Mm. So let— let’s dive into that and zero in on infinite banking for a minute. Can you kind of explain for someone that’s never heard the term before, what actually make it— makes it different from like something like life insurance? Yes.

Alex Kholodenko (07:40)
Yeah, so first of all, this product is only tailored for very high-net-worth individuals that have funds to invest on a continuous— on a monthly basis that are probably already maximizing their retirement accounts or their other funding vehicles such as stock market outside of the retirement and real estate. So a perfect client: somebody maybe in their late 40s, mid 50s that still has 15 to 20 years of working and enjoying their life, and maybe they’re maximizing their 401(k). Maybe they already have heavily invested in a real estate, including a non-retirement account as well, and now they’re looking for ways to continuously fund this plan and get an upside from the stock market, but again, use this as a downside protection as well, where you can build that sort of a nest egg and the shield that you can withdraw the funds when you need, where you identify an amazing opportunities and continuously to have an opportunity for tax-deferred and tax-free income down the road when you ultimately decide to retire.

Cody Crabb (09:00)
So what is it that people tend to misunderstand about— you know, what it’s— I’m hearing you say who it’s for, right. But like, if— if I’m hearing you right, this isn’t meant to kind of replace real estate or other investments. It’s kind of just a tool for the right investor. But mechanically, like, how does it actually work? Yeah.

Alex Kholodenko (09:20)
So there is a reason why Rockefeller and other icons that some of the listeners know, including Jim Harbaugh, for example— one of the better examples that some people may also know that are football fans as well— that are using some of these policies. So the biggest misunderstanding is that you need to have a lot of insurance for that. That’s actually not the point. The point of infinite banking is to buy as little as possible of life insurance and get as much as possible funding on a monthly basis of the premium that will ultimately go toward the investing component of the product. So think about somebody in their 40s, maybe 50s, that might qualify for $250,000, maybe $500,000 policy that probably has additional several life insurance policy in case something happens to them, the family could replace their income and live in a good way. Obviously there’s devastation when sometimes that happens when a person dies. But at the same time, the point behind that policy is that compound growth on a monthly basis, if somebody could commit to one, two, sometimes five to $10,000 a month, that over time growth, tax-deferred, tax-free, with a downside protection. And over time, even at the conservative numbers, we’re talking about eight to 10%, that compound interest does amazing— pretty amazing work on its own.

Cody Crabb (11:38)
So, you know, my— my listeners are gonna be thinking, well sure, but like, if I’ve got extra cash flow, I mean, I’m in real estate. Like, why am I not just throwing that into more real estate? Like, you mentioned some of the people that you’re working with are trying to lower their risk tolerance, but is there a r— is there a reason that someone would— th— this would— this would make more less or this would make less sense for them than just kind of continuing what they’re doing and it— it’s— is it just ’cause it’s less diversified?

Alex Kholodenko (12:07)
Well, diversification is one. Number two is a downside protection. Right now, you— we’re going to reset in real estate in many markets, right? And as a real estate investor myself, like you said, I’ve invested in 2000 plus units across commercial real estate, in individual single-family real estate. Sometimes some deals don’t turn out to be even close to what your projected return. Right? You— I’ve had some of the investment that they’ve done, you two-X or even more, but sometimes there was a complete loss of capital. So as you get older, you start to understand that maybe you cannot be as aggressive as much. Maybe you need to diversify outside of your traditional route of just a real estate that would you be known. And there is a reason why a lot of wealthy people do these type of infinite banking plans is because it adds an element of protection. It adds an element of a tax-deferred growth with very little risk of losing your capital, which is impossible, or generating positive returns. Plus, in addition to that, we’re talking about potentially legacy planning, we’re talking about loan options where you can withdraw some of these funds, you don’t need to worry about qualification for the loan, credit score, this and that. So that there’s a lot of benefit. This is obviously one of the many strategies that may— and many people should be looking at so that they can sleep well, and then they— they can enjoy— they’re really—

Cody Crabb (13:45)
Yeah, I think sometimes people think a lot about the process of retirement, but not so much about like, you know, i— i— once you— it’s not just once you get there, like there’s— and it’s not just about the money that you’re getting, either. There’s the— there’s this whole process of like, “Well, now what am I gonna do now that I’m here if you’re getting to that point?”

Alex Kholodenko (14:02)
And it’s a process, right? And it’s a learning curve. And I was just listening the other day to the YouTube presentation, watching the same time, and the person was describing the journey, the investor journey, right? Think about this as a ship, and then a lot of times, you know, there are storms. There is a stock market bubble. There is a war in Iran. There is a war somewhere else. There is inflation. There’s always these pirates that are trying to attack your ship and steal your portfolio returns, right? And that analogy made so much sense where you think about it, you know, it’s good to play offense. I’m a big sports fan and I just finished watching Argentina-England game. And the analogy was, England was winning and sometimes you’re winning. You have an amazing returns. You feel like you’re on the roll, but you know that after all these times, the wave is coming. Somebody is gonna try to get on board your ship and try to take it over, right? So Argentina won and they were able to overcome England. And this is how you need to think as yourself as an investor is. It’s great that you’re playing offense. It’s great to be risked, but what about being more risk-averse? What about sometimes taking to play defense? And I’m not saying to play too much defense because obviously inflation and this and that… going back to the game, you know, England played too defensive, so they lost. You don’t want to be too defensive, either. So, you know, think about the infinite banking strategy as kind of as part of your diversified portfolio. Maybe you need to allocate some of your funds into that so that you can play offense as well as defense.

Cody Crabb (16:32)
So was there— I mean, it sounds like this— this kind of philosophy of yours is not built in a classroom. It sounds like it was built from kind of losing a lot of money. I— I don’t know if I’m right about—

Alex Kholodenko (16:42)
I’ve had good, bad, and ugly returns, including the stock market. I’ve made a lot of money in real estate, including the stock market, because I’ve been investing for 30 plus years. But I made a lot of mistakes as well along the way. And as I get older, as I turn into my 50s, now I’m starting to play not just offense, I’m playing defense as well and helping others along the way.

Cody Crabb (17:06)
Well, I’d love to hear, is there a particular deal or a particular investment that really changed your mind on how you think of risk and and how that you know, that just— just the way that that concept applies to you? Sure.

Alex Kholodenko (17:22)
Well, over the last five, seven years, as you know, the interest rates were low and they stayed low for quite a bit, some time. And one of the deals that we ended up investing was on the bridge loan, and there was a lot of bridge loan expiration dates on those loans. And unfortunately, one of the deals that we ended up investing was they could not refinance. And then, luckily, we prolonged the expiration date for the loan for additional period of time, but the deal is still struggling and right now the evaluation on the deal is significantly lower than when we bought it and investing it, and that was 2022. This 2022, as you know, 2022 you could argue was, you know, peak of the market, right? So this deal is struggling, and if we were to sell now, we would probably lose 30 to 40 percent or even more. And not even, you know, in the best-case scenario that I would have imagined that I would have lost 30 to 40% in a commercial apartment building investment. And by the way, it’s located close to downtown Austin, which was booming. If you remember two, three, four, five years ago, there was a lot of tech jobs. The rents were going through the roof, but how things change, right? We’re talking about now, Austin, you could argue it’s actually one of the worst rental markets in the entire nation, right? So how do you prepare for that?

Cody Crabb (18:54)
Mm, yeah. Yeah, because it’s on paper, everything seemed like it was totally—

Alex Kholodenko (18:58)
At that time, that was all the fundamentals. As part of our due diligence, we went on site, we checked the rentals, we look at the comps, we flew to the asset. I’ve been to Austin several times. We know the partner local operator that actually located in Austin. We were buying at the discount at 20% down from the all-time high, and they negotiated an amazing deal at that time. We also have financial analysts on staff that look at the underwriting model. They looked at all the downside protection, but obviously we were wrong.

Cody Crabb (19:36)
So I’d love to hear a little bit more about how— you know, there— there’s the textbook answers, like, “This is what everybody says you’re supposed to do,” and then there’s the not textbook answers of, “You can’t predict everything and— and sometimes things are different, and sometimes things are new and we’ve never experienced them before.” AI is a brand-new thing. How— how do you kind of balance those things? Because if the textbook says… I mean, people were wrong about two thousand eight. People were wrong about the dot-com bubble. I— I’d be curious what you’d say about kind of doing what the— what the textbook says versus, you know, using your own judgment and things, ’cause it seems like that’s a tough line to walk.

Alex Kholodenko (20:18)
It definitely is and comes with experience, right? You know, we’ve talked to advisors and other analysts and other people, and at that time that made sense. At the same time, I think you’ve got to surround yourself with people that are smarter than you. There is so much information out there, as you know, on the internet. And with AI now, you have too much information— it’s an information overflow. At the same time, I feel like there’s a huge, huge need for human connection of talking to people and validating your assumptions because we all have blind spots. Nobody’s perfect, and we need to connect with somebody who has your trust and respect, as well as experience that have done this. And maybe we haven’t done enough due diligence on some of those deals in the past, but at that time, that was the time that we acted on. In retrospect, like I said, hindsight 2020 is, I would encourage everybody to validate their hypothesis and investments by talking to people that have gone through multiple— maybe not even one, but maybe multiple— real estate boom and bust cycles to see and get their opinion before you make a final decision on the investment.

Cody Crabb (21:39)
So if you could leave real estate investors with one lesson from everything you’ve learned— and I think this will be interesting because you don’t just operate in real estate investing, it’s something you do, certainly, but it’s not— that’s not all— if you could leave real estate investors with one lesson from your twenty plus years, thirty plus years of experience, what would that be?

Alex Kholodenko (21:59)
Yeah, obviously that’s a great question. I look at it from a different lens versus some of the other people as well. I would actually start by listening and going back to the basics, to the roots of Warren Buffett. Rule number one: when you start the evaluating deal is, “What could go wrong?” Right? You know, look at it from the risk-averse perspective first before you get excited about the upside, because we as humans tend to be over-optimistic, right? We tend to look always on the brighter side, on the positive side, on what could go right. But maybe the right approach is from the guy from Omaha, god bless his soul, is look at what could go wrong. And if it passes the criteria of that— of that risk aversion, then proceed to the next steps of evaluating the deal and looking at the upside.

Cody Crabb (22:56)
Yeah. I— I think being pessimistic has saved a lot of people a lot of money— a lot of money. ‘Cause—

Alex Kholodenko (23:03)
Of heart attacks and heartaches.

Cody Crabb (23:05)
Yeah, yeah, because I think some people kind of apply this kind of, “It’s bad to look at the b— look at the bad in things.” But in business and in investing and stuff, that can save you because you’re kind of imagin— you’re able to then imagine, “Well, if I did this, then this could happen or this could— or this could happen.” Yeah, and and then—

Alex Kholodenko (23:24)
Very good point. And just to add to that, you know, I don’t mean to be too negative because I have a very positive personality. I’m a big Tony Robbins, Think and Grow Rich, Napoleon Hill, all of these big, big people that believe in the power of the mind, of the power of manifestation and all that. And it is hard for somebody positive to look objectively at investments and look at negative. But as part of the investor journey, remember those ships and the analogy is that it’s just a matter of time before your ship is gonna try to be onboarded by those pirates. You have to be ready for that, right? You have to be ready.

Cody Crabb (24:05)
Yeah. And I— I like the boat analogy. I like the boat analogy because the— you know, sometimes it’s pirates, sometimes it’s a storm, sometimes your boat falls apart for reasons you don’t know, like it’s—

Alex Kholodenko (24:19)
Broken. Sometimes you run out of water or out of the food, sometimes there’s a sickness on board and it’s crap.

Cody Crabb (24:26)
You never know. But and I like— I also like the idea that there are some things you can do to prepare. So that’s— that’s— that’s a really good analogy. We are almost out of time today, but I’d love to hear more about, you know, what are you working on right now that you’d like to share with our audience that they might be—

Alex Kholodenko (24:43)
Yes, I’m constantly working on new strategies to help my high-net-worth individuals that are real estate investors. I also— being in Silicon Valley, I have a lot of people with a tech background. My wife is a dentist, so I have the dentist and dental office people that are working with me, and I’m just constantly trying to expand a different type of ways how I can add value and add more diversification and income protection strategy. There are some strategies that produce, for example, guaranteed lifetime income that I’m also exploring and learning and helping others along the way. So there is a way to create a guaranteed income stream. If somebody is interested, we can chat offline about that.

Cody Crabb (25:34)
Awesome. And if someone wants to do that, how can they— how can they get in touch?

Alex Kholodenko (25:38)
Yeah, so the best way to get hold of me is probably via email. I can be found on my website, goldenoaklegacy.com, or you can email me directly at [email protected].

Cody Crabb (25:53)
Fantastic. Well, thank you so much. I think this has given our listeners a lot— some new strategies to think about, some stuff to— to really ponder about their— their future. And I— I can’t thank you enough, Alex, for— for joining us today. Thank you so much. And thank you listeners for hopping on today as well. Thanks for giving us some time. Make sure you catch the next episode and we’ll see ya on the next one.