Whole Life Insurance for Real Estate Investing
This post is inspired from a great blog post from @Loc R. http://www.biggerpockets.com/blogs/519/blog_posts/22980-why-havent-you-started-your-roth-ira-yet
One of the most common challenges most real estate investors run into is having enough money to do the number of deals they want to do, and hence we search for private money, or tap into IRA's to get our next deal. There is one area that is often overlooked for investment capital that I think bears some discuss: Whole Life Insurance policies with cash value. Yes, that mouthful of words could be your ticket to an untapped resource of funds for your next deal.
You see, whole life insurance policies are one of the most expensive policies to buy because you essentially are building a personal cash bank for yourself that you can borrow against at all most anytime. As you pay premiums towards your whole life policy, your cash value increases. In the first few years of your policy the cash value is small, but as time goes on, your cash value increases to the point where its worth considering borrowing against that cash to buy more assets for yourself. This is where real estate comes into mind.
As you have enough cash value in your whole life insurance policy, why not consider borrowing from yourself, to buy that next income producing asset? You pay your life insurance policy back with the income produced from the tenant, and in turn your cost basis for your investment property essentially is zero.
This is barely scratching the surface of all the things you can do with a whole life insurance policy and real estate, but I wanted to at least open the thinking process to this powerful yet under-utilized asset accumulation strategy
Comments (5)
I have been doing this for the last 8 years,As my friend Nelson Nash says ITS ALL ABOUT HOW YOU THINK.There are insurance agents trained all over the country that can help you with this, you can find a list at https://infinitebanking.org/
Be careful it could change the way you look at real estate
Justin Bauer, about 7 years ago
what if you get a larger amount like 1m and do that strategy
Beverly Peffer, about 7 years ago
Can anyone else share their experience with this strategy? Since crowdfunding platforms are lowering their minimum investment amounts, I'm curious if that is another avenue for investing using your WLI.
Jose Guevarra, over 7 years ago
I was considering doing this myself. I have about 40 Grand a year extra to invest in properties. My plan was to pull out that cash value purchase a property, put some lipstick and Rouge on it get it appraised at a higher value find a local bank that will lend somewhere in the neighborhood of 70 to 80% of the appraised value take that and replenish what I took out of the life insurance policy and rent out the property for a positive cash flow. Rinse repeat. I don't really care if the market corrects or not as I'm in it for the milk not the steaks. As long as I have 30 year fixed loans and there's positive cash flow and I have reserves for maintenance, I don't care the houses are underwater , because I'm not looking to sell in 5 years. In looking to buy and hold for the long term. The Federal Reserve is between a rock and a hard place because the government is so indebted they can say they want to raise interest rates all they want but the reality is they can't without some serious economic pain. No political party will push to do the responsible thing and pay down debt or cut spending. Therefore I see the monetary base continuing to expand which makes debtors winners and Savers losers. Those inflated dollars will pay back the loans on that property. And I will be left with the cash flowing asset free and clear. Rents will keep Pace with inflation it doesn't matter what is money you could be gold , dollars, or Hershey Kisses.
Whole life may prove to be a useful tool in this process. I am 28, healthy, non smoker.
Any potholes I may have missed?
-DC
Doug Cook, over 7 years ago
This is cool that people are talking about this. It is the BYOB concept. I think it is a great way to leverage with a decent amount of safety. I have done this but on a smaller scale. I have purchased 2 investment properties with cash value loans.
I think your idea is solid. It is applying leverage. If you start at your age you will do really well. You should get an exam and then run the numbers. The idea is you do not have to pay back the loan. You can use it as an interest only loan. You are purchasing the life insurance, using it to for a loan to purchase the property, then paying interest on the life insurance loan. So you are buying the life insurance for only the cost of the loan interest. And your death benefits and cash values grow tax-deferred. The loans are actually loans using your cash value as collateral. Death benefits would be paid subtracting your loan principal and interest.
BTW this is kind of the reverse technique that high networth individuals use. They use their illiquid real estate assets as collateral and then purchase life insurance with a bank loan (at low interest rates). They again are purchasing life insurance with only interest money.
This is in contrast to IRA's (and of course 401k's which you do not even manage) which cannot be used as collateral for a loan.
My wife does life insurance with a highly rated mutual company that has policies with high early cash value, please PM if you want a quote.
Ankur Sethi, about 7 years ago