Secure, High-Yield Returns Through Real Estate Lending with The Bedrock Fund
With interest rates on the rise, private credit funds are gaining popularity among investors seeking alternative opportunities.
In this episode of The Unconventional Investor, we talk about the fundamentals of asset-backed lending, the innovative structure and strategy of The Bedrock Fund—a private lending platform for home flippers—and discuss how it offers accredited investors stable, non-traditional returns.
Joining us is Mark McKeller, Principal & Director of Originations at The Bedrock Fund. With over 20 years of experience in real estate investing and asset-backed lending, Mark shares what makes The Bedrock Fund unique and how it can complement your investment portfolio.
Links:
Learn more about The Bedrock Fund: https://thebedrockfund.com
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Introduction to the Unconventional Investor Podcast
Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of Me Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.
Let's head into today's episode so you can start taking control of your financial future.
Introducing the Bedrock Fund with Mark McKeller
Hello everyone, and thank you so much for listening. Today we are going to be talking about the Bedrock Fund, which is a lending fund, and I'm excited to have this one on here because I think it's a very straightforward fund for people to understand and to talk about that we have Mark McKeller here.
Welcome, mark. Hey, thank you, Michelle. Yeah, thanks a lot for having me. Yeah I'm glad you could be here. We've been talking for quite a while, so I'm glad to have him on the show. And Mark McKeller is the principal and director of Originations for the Bedrock Fund. He's a longtime real estate investor and was a franchisee with Home Investors of America, which is the biggest single group of investors in the country that buys discounted single family residences.
Thank you, mark, for coming on. Yeah. Thanks a lot for having me here.
Understanding the Bedrock Fund's Lending Model
So, let's just talk a little bit about the basics of what the fund is and how you would describe it to someone you know, in just your short little elevator speech. Sure. The Bedrock Fund is a fund for lending money to real estate investors who wanna buy, fix, and sell houses.
So it's asset backed lending. We lend money at a discount off the value of the house. If something's worth, say, a hundred grand, we won't loan more than 70 or 75,000 on it. So we always have equity. And when people fix them and sell them, then they pay us back. So it's pretty straightforward. It's, it's, , commercial alternative lending.
We're not the same as a mortgage company. We have a different. Set of rules that we follow. But, the reason we got into that business is because we're experienced investors ourselves. I've bought lots of houses. I hold a good number of rentals now and over the years being part of that, home investors, we buy ugly houses, company, I've gotten to know a lot of investors and we all have the same issue.
most lenders, they underwrite their loans to the lowest common denominator, to investors that don't have a lot of experience. And they do that for a reason. They do that because they wanna keep their money safe. But that also means that very experienced investors, like the people at home, investors and us have to play by a set of rules that's kinda, can be hard sometimes.
So we got in the business to be able to provide a product specifically to highly established. High performing investors, and that's what we do. So we have a loan product that goes to people that are very successful already that we don't have to worry about defaulting on us, and we know them through the home network 'cause we've been part of it for so long.
And the proof's in the pudding. In six years we haven't had a single default or had a single investor not pay us a monthly payment because that's who we, that's who we, that's who we count on, and that's who we target. How many people are we talking about here that you loan to? Home as a group has about 1200 franchisees, but we only loan money to the top echelon.
We have about a hundred investors okay. We don't target anybody, in fact. You can't just call me and say, I'd like to borrow money from you. We invite our investors. We select them specifically based on their performance at home investors. And since we're part of that organization, we can see the performance of different franchisees and how they do.
And so we actually, when we need. To put more money to work. We will, I will go out and look at the different franchisees and how they're performing and I'll interview them and if we decide to invite them in we'll loan them money. So we're different than other funds that have a big budget for trying to get customers in and having to take in customers and people they don't.
We only do business with people we know very well that have proven themselves. So that's one of the main things that makes us different. And while we're so good at keeping our own money safe and keeping the money safe with people that invest in our fund, because we're so peaky about who we loan money to.
Yeah.
The Network and Market Focus of the Bedrock Fund
'cause I think when you say home flippers, people just automatically think of. They have a vision in their mind. We all know what that is, right? They do. And what you're talking about is people that have a system, they have a network, and even if there was a house that went sideways, you would have another investor that would probably be interested in that house.
It's not like it would go into foreclosure and then, go out onto the street. It's more of there is a network. If something happened to this one flipper, then there is a whole other, team that would come in. Correct that, that's a great, that's a great point. That's one of the values of being part of a part of this network.
I'll give you an example. If I loaned money to someone in Atlanta that's part of home vests and he had a problem first of all, since that's, so that's where our home office is. We, and we know how to buy, fix, and sell houses. That's what we've been doing for, 25 years. If a house if a investor we were loaning money to had a problem there, I'd probably just go get the house myself and fix it and sell it. But if I didn't wanna do that for some reason, I could just call another home investor's franchisee right there in town and say, Hey, would you go get this house from Joe and help Joe out and help me out and, pay me back.
And you can have the profit that's left over. So you're exactly right that most li, most banks. Their big risk is they're not investors, right? And so they don't have that kind of network and they don't have the ex expertise to handle a problem. We haven't had any problems yet, but if we do, we'd know exactly how we would handle it.
And you're right, a foreclosure would be the last thing that would happen, right? Because there's the, there this, the network of people. And then I also think this is what stands out to me about your fund is that can you tell us where the houses normally are and what. They normally go for, because I think in today's market, yeah, especially here in Phoenix, you have to have at least a million dollars in order to flip a house, a nice house.
You did. And so yeah, why don't you tell us about the markets that you're in and the price points. Sure. We focus mostly in the southeast, a little bit in the Northwest and a little bit in the Southwest, but mostly in the southeastern United States, and also the Rust Belt, like Pennsylvania, Ohio.
Michigan, because those tend to be working class, moderately priced houses. And it's really important to us that if some, for some reason we had to take a house back and for some reason couldn't sell it, that we could rent it for something that would cover the investment. And, that's hard to do in Phoenix.
That's hard to do in California. That's hard to do in New York. That's why we don't loan money there. Whenever we want to go into an area we do. We do some analysis of the market conditions there to make sure that if something went wrong that it that we wouldn't be upside down. So most of our stuff are in the more moderately priced, our average loan amount is around $200,000, a little over it.
That's. You're not gonna find much of that in Phoenix. And I think that's what, when I tell people about your fund is I'm like, no, they're in Oklahoma and in these other states where you can actually find a house for $175,000 and that's what you guys are going towards is more of I would call it affordable housing now.
And that's what you're flipping and so it's not anything that's gonna overtake the entire fund. No, you're right. And we also are pretty careful too. Stay outta places that tend to be the first ones to suffer in a downturn, right? If you think about the places back in oh 8, 0 9 and even, in the early two thousands and also just a couple of years ago the places that really suffered the most weren.
Oklahoma and Alabama and Georgia and North Florida. We don't do anything really in South Florida, north and central Florida, those places didn't get hurt
near as bad as some of the other markets. So that's important to us too. Okay.
Fund Structure and Investment Details
And so now can you explain about the structure of your fund?
Because it is, you guys, I always, I feel like a broken record in talking about this, but it is open to accredited investors and essentially what I call it is a credit fund just because you're offering credit to people. Yeah. And that makes it easy for people to understand. So can you go through just the.
The numbers of your fund, the minimum investment. Sure. Yeah. I'd be happy. The minimum investment is 50,000. Maximum is a hundred million. We don't, we're not out to raise another a hundred million. We, right now we're looking for 10 million. And if I had 10 million tomorrow, I could place it all.
I know exactly who I would call. I've already in interviewed 'em. I just hadn't told 'em I'd loan 'em any money yet. 'cause I need to raise a little more. Currently we have 26 million in equity in the fund and we have a $20 million line of credit with Western Alliance Bank. And by the way, that in and of itself, if people really look into it, will show you.
How much credibility we have, because Western Alliance typically doesn't do business with firms as small as we are. They love us. The due diligence that you have to go through in order to get something like that. Yeah. There was another fund that I interviewed. Yeah. And they got approved with Citibank and the years of due diligence that they had to go through to get it.
So I would imagine it's kinda like that. Yeah. Two years. Yeah, two years of the kick in the tires basically, and interviewing you. Okay. And so you have a line of credit through them. And so how does that work with the fund? Because you're raising money from regular people, right? And so you have a pool of that, and then you have this line of credit.
And so how does that all go together? The 26 million that we have from private individuals those folks invest directly in the fund, and then we loan that money back out. We pay our investors a flat eight, 8% a month. That's in the PPM. And, if you let it compound monthly, of course it'll go up with compounding.
But the, we pay that out automatically every month. And then we turn around and we, and that's about the rate. We borrow the money from Western Alliance also, and so we turn around and we loan that out to investors and we charge them more. We charge them 1 1% a month and then a point a quarter. So that spread is how we make money.
That's how we're able to pay our investors every month because we're making more. Then we're paying out. And the, an investor that invests in the fund becomes actually a member. He's not lending money to the fund. He's actually becoming a member in the fund itself. And he gets his pro rata.
Protection with the asset pool. So let's just say, make the numbers easy. We've got around around 45 million with the in debt and equity. So if we loan out $45 million in, in, in all that money, the actual properties will be worth probably 65 or 70 million, right? So each person's investment is protected by that equity.
Their pro rata percentage. So everybody has a pool that they're protected by. And the reason that's better than having your money protected by one house or one asset is because if that thing forecloses, you lose all your money. This way when you're protected by a pool, if one thing goes wrong, it's gonna have an insignificant effect on you as an investor.
'cause it's such a small part, if you got 45 million out one, $225,000 house isn't. Isn't very much it. And so being protected by the people is better. Does the line of credit protect you? If there were, I know you haven't had a foreclosure, but if there was a foreclosure, does that line of credit come in to basically protect that you wouldn't have to foreclose and that you would just go and finish the house?
Is that kind of Yeah. Yeah, we there's always a little bit of money left over in. Either the line of credit bank account or in the, at the equity bank account, we all, it's just theoretically impossible to keep all your money on the street all the time, even though you'd love to, 'cause you're paying interest on it to investors and to the bank, right?
But the bank doesn't investors and invest in the fund. You get your 8% on your investment every month. It doesn't matter whether we've loaned your money out or not. With the line of credit, they only charge us when it's out. So we keep some of theirs in the bank for that rainy day problem because it doesn't cost us anything.
So that's exactly what we would do. If a house foreclosed and we needed to buy it back ourselves, we would just use the line of credit money. But typically that's not what happens. 'cause to your point, we'll just call another investor. And we'll get the person who's having trouble to quit claims the house and we'll just let the other investor fix it.
So we probably wouldn't have to do that, but we would if if you had to. Okay. Okay. So if an investor invests $50,000 minimum in your fund, they get 8% a month return and they're here. There's 8% or so. Oh, I thought you said a month. Okay. I was like, wow, that's a lot. Okay, so they get their payments every month, but it's okay.
I see what you're saying. Percent 12. Yes. 8% a year. I'm like, damn, that is a lot. Okay. Okay. Sorry. I was misleading. That's okay. So they're getting paid every single month and isn't there, there's a year that you have to stay in the fund, right? There's a minimum. That's right. Just you don't have to, if you need your money, you can take it, but there's a little bit of a penalty if you take it out early.
After you leave it in a year, you can take it out anytime you want. Because we, our loans are short, all right? And the per average person that bars money from us needs it for a little less than six months, which means we've got millions of dollars paying off and then being relent every month. So if somebody needs some money, chances are if it's only 50 or a hundred grand, it's sitting in the bank, we just write 'em a check.
But if somebody needed a million. I may need a month or two or three to collect that money from payoffs and send it to 'em. But they can do that anytime they want. As long as it's after one year. Just before one year there's a little penalty. Okay. Yeah. So your fund is just so different than all the other ones.
'cause usually you invest in something that's a private placement and you're. For at least three to five years. Five years, usually five to seven, eight years, I would say with, I think people are idealistic with how long they think it's gonna go. And so I think yours is so different because it truly is like just lending , and I always put yours next to, 'cause People say what is the like flavor of the moment and right now doing credit.
Is where you're gonna make the most money in this market. That's, I if you are in some sort of credit fund, because the banks are not lend ing and they're very heavy on commercial real estate right now. They are not wanting to lend out a whole lot. And so the market is going towards all these private credit funds that we're talking about, but a lot of them, you have to have your money in there for, th the credit funds have a shorter timeframe of three to five years, but you're.
They do. Yeah. Yours is different though because you've got the minimum of a year. Really. It's flexible, but then you can take it out. And I always put yours next to, 'cause a lot of accredited investors, they don't have time to go manage all these money, all this money. I'm like, okay. So you could make a lot more by being the direct lender on a home if you really wanted to.
But then you'd have to go through title company that's, and you would have to then foreclose on something on if it something happened. And you would also, and you may have to have a license. Yeah. And then the, then there's your fund that would be in between. 'cause on that, they could make maybe what, 11%, like what you're talking about of lending to your investors.
But this you guys take a few percentage points and then you can make your 8% a year by just having you guys do all the work. That's the way that I put it, next to each other and what you're saying. Makes such sense. I'll tell you something funny about it. So we have some direct competitors that are in the business of originating loans, like you're saying, but they experience exactly what you said.
They can't keep their money out all the time and they have to manage it. So those people, those actual direct competitors have money invested in our fund too. Because our fund pays 8% every month, the monthly amount, 8% every month, whether it's L out or not. And that gives them steady cash flow because they can't make that happen in their own lending business.
They can't keep it going. So that's the difference. Yeah. And you guys have this whole network of. I'm gonna call 'em flippers because it's hard for people. You say they're, yeah. When you say investor, it's is it the money investor or is it the real estate investor? Correct. But you have a whole network of flippers to fall back on.
And I think that is the key is how healthy is that network and and then you guys have all been in the business and then you were actually a franchisee of this, of the home. The home I've been in that network. I've been in that network for 25 years and we've gone through various ups and downs, and the home franchisees had better success and less trouble and less defaults as an organization by far than any other investors in the nation.
Even in oh eight, only 10% of our network even. Had any troubles with loans and most because of the training you guys do. Yeah, it's the training. Training and the systems and how risk averse we are. We have a mantra, you never get hurt by the house you don't buy. So if there's any ch. If there's any chance it's gonna be a bad deal, just go to the next one.
We're, yeah, just walk away. Yeah. Just don't fool with it. And most investors aren't like that. They're they try every way they can to make something work. And that's a risk. And [00:17:00] we're, since we're trained that way, we're also that way as lenders. And a lot of the times our investors will.
They u they don't, our investors don't leave us. They love us. Our flippers that we loan money to because they know that if we have concerns about a loan, we're gonna talk to 'em about it. If, like another investor, 'cause that's what we are, and they'll listen and a lot of times we'll show 'em things they didn't see.
And, then they may not even, I've got several examples of people not buying houses because we showed 'em stuff they didn't see. Do you guys approve every single hou, so does it with the investors. So you're approving every single loan and you're underwriting it. Okay. I didn't know if sometimes the flippers got trust and then it was just like, okay, no, Joe knows what he's doing.
No, it's not like that. No. Okay. No, that's good. If they are guys, like if Joe, somebody we trust if we look at it and it doesn't look like he said it looked, we won't just say No Joe. We'll go back and say, [00:18:00] Joe, show us how you figured out what. Show us why you think what you think. 'cause we see it differently and often we'll go, oh yeah, okay, we didn't see that.
And then. We'll do it Joe's way, but we're not just going to assume he's right. We're, it's your underwriting. Sometimes we're, yeah. You're underwriting each individual loan. Okay. But they appreciate that back and forth communication. A lot of bankers, they aren't like that. They just, you get a call from some, some loan originator who's never bought a house himself and goes, oh we can't do that.
Here's all we can do. And he doesn't tell you anything or give you a chance to, so it's a different relationship. Okay. And that's one of the reasons that it's easy for us to originate more loans, is because the people that we do business with know us already and they and you already have, yeah.
And you already have that relationship and the financials and Yeah. I'm sure there's a lot of time that's saved with all of that. It's, you mentioned, no, go ahead. I was just gonna say, you mentioned something a minute ago that I wanted to touch on for a second. The difference in what we do with [00:19:00] other, a lot of these real estate investments where you're tied up for three to five years that are maybe on a, an apartment project or something, they, there, there is a potential you could make more than the 8% a year we pay.
You might make 10, you might make 12 but you might not. You gotta wait three to five years to figure it out. That's what I would call a growth investment. What we are is more like a protect your cash investment. It's like you're gonna get your 8% a year, you're not gonna get any more than that unless you let it compound.
And then you can, run a compounding table and see what that would be. I can show anybody that wants to see it, but that's clear. That's what it is. There's no less, no more. It's just what it is. But that's predictable. And it's only one year. It's really a different pot of money than the other.
A lot of people, maybe they'll have money they wanna throw into growth. That's, I don't wanna try to get that money. The money we want is your asset protection money, your cash, you know what you might, instead of putting it at buying a T bill or instead of doing a, money market or a CDD might wanna do something like this.
Yeah. At 8%, right? Okay.
Investor Experience and Security Measures
And so is there anything that, do you have, I guess when somebody. Registers or subscribes to your product, then do you have some sort of portal that you look, that they look at to see what the returns are? Can you explain what the customer experience is? Yes. First of all, in your diligence, if you want audited financials, if you want, to see a loan tape, if you want anything to give you more numbers, you certainly can get that and we'll send that to you anytime.
There's a new audit coming out in about a week. You know anybody that's interested, certainly welcome to it. Once you're, once you are an investor, you don't go to our bedrock. The Bedrock Fund website to get to your portal. That's for our borrowers. And it does have basic information for investors, but the portal that you would then have access to is an investor.
And our fund is a Thompson Rooters product called Onvio. And the reason we use that is it's so secure and so information about your investment, information about the return you're getting, your monthly statement. All of those things is in a portal hosted by Envi o that that we give you a password for.
And not everybody can get access to those. Our firm and our, the funds manager, Brit Jennings has the ability to have an envi o fund because of our status. But it's a it's a different thing than our portal itself. It's more more secure.
And then you guys have a quarterly newsletter too? We do, we send a letter, a quarter newsletter out about every quarter. And again, any, anytime anybody wants to see anything at the moment, all you gotta do is call us. We'll send you anything you want. Okay. All right. I think this is a great overview of the fund and if you want more information, they can get in touch with you or go to thebedrockfund.com, right?
That is correct. Okay. And I will have all of your information in the show notes if you guys are interested in you can always call me too if you want. I could say that also. If you're interested, thank you in investing in this. But again, you do have to do, be an accredited investor. The minimum is $50,000 and it seems pretty straightforward.
A lot of the funds, you guys, there's just a lot of fees and wrap up things and origination stuff, and this is pretty straightforward. Okay. Again, I think it, it would be a great replacement if you were just wanting, something besides treasury bills or some sort of other safe thing that you had.
This is not gonna replace like your stocks unless you're wanting to go safer. Let us know if you have any questions and thank you so much for being on Mark. I really appreciate it. And you guys, thank you so much for listening. I hope you got something from this. Alright. Thanks a lot. Thank you.
Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to mefinancial.net/contact us to book a 15 minute consult call with me.
Let's discuss how we can work together to achieve your [00:23:00] financial goals. Until then, I'll see you on the next episode.
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