BiggerPockets

Last week I met with a local financial adviser. I informed him that I'm a real estate investor, so he suggested Infinite Banking as possible financing option. The infinite banking sounds similar to using $401k or IRA to invest in real estate. The difference is that infinite banking is a life insurance product. Does anyone have actual experience with this? I'd love to hear your personal opinion. Thanks.

Thanks for the info Jim.

In short, when you understand the power of the 5,000 year old rules and benefits of the Banking Process and combine those laws with tax advantages of Real Estate and a properly structured IRC Section 7702 contract (which is similar to those of a Roth IRA without the pre-distribution penalties), you now reap the benefits of your Real Estate as well as those benefits the banker gets on those deals where people rely solely on OPM. I will be posting more information shortly to help people understand the power of this process.

To help you begin to understand the power of banking and the importance of Being Your Own Banker, pull out your most recent Truth in Lending Statement which is commonly referred to as Regulation Z, which is part of the Consumer Credit Protection Act. Its purpose is to promote the informed use of consumer credit by requiring disclosures about credit terms and costs. You'll soon see that you are buying a house for you, one for the bank and if you look even closer you'll find you buying a third house for the IRS. Guess which house is bigger? Now wouldn't you like to trade places with the banker? That's what Infinite Banking is all about.

First off, I was NOT describing 'the banking system' (and certainly not the banking system you represent which is the banking system that your clients don't own and more importantly can't control). I am speaking about the benefits of creating your OWN Banking System…one that THEY control. Second, do you doubt that when your client's buy a house using one of the mortgages your corner bank offers, that they will be paying for another house that will be bigger than the one you financed for them? And what percentage of your clients have you explained the tax advantages and tax gotchas of the mortgage you sell? Mind you, there is nothing wrong with using other people's money... It is just that there is a whole other way that people have not been taught. Becoming your OWN BANKER offers liquidity, use and control that few people have heard of and control that is certainly not possible from their corner banks. And being your own banker when you are purchasing Real Estate is an incredible combination that allows the owner of the bank to make more financing the property than they will make in purchasing and selling the property. You might want to try to understand the concept and consider the possibilities before you dismiss it out of hand. Oh yes, and thank you for the compliment that I am breaking new ground, for that is exactly what Being Your Own Banker does.

A little research leads me to conclude there are two approaches to this strategy: whole life insurance and 401k. Either buy a whole life policy or put money into your 401k. Then borrow against that. The interest goes back to yourself.

I actually can't find much where it talks about the 401k aspect of this, so that's really speculation based on the description of using whole life and the fact that 401k plans usually allow loans.

Lots of description about the whole life approach, though consistently accompanied by 10x as much repetition of what Ken says above.

Also found out "Infinite Banking Concept" is a name trademarked by Nelson Nash. He travels around educating insurance agents on the concept. I'm sure insurance agents like the idea because its a way to pitch high priced, high commission whole life policies that have otherwise been debunked as a reasonable "investment".

In reality, the concept of borrowing from a whole life policy is nothing new. That's been touted for many years as an advantage to these plans. Nevertheless, much more cost effective to buy a term life policy at a much cheaper and use the money you safe, which will be something like 75+% of the cost of the whole life policy, for your source of funding.

Borrowing from a 401K has pluses and minuses. The biggest minus, IMHO, is that many plans require you to pay it back if you leave the company. The fund managers will argue you're giving up the returns you would have gotten. But, if you think you can do better than the funds they offer, that's not much of an argument. Getting a fixed 6-7% on your money vs. plunging stock markets looks pretty good.

However, the maximum loan is $50K, and that requires having $100K in your 401k. And the maximum term is five years except for the purchase of your primary residence in which case its 10 years. Even so, much shorter (i.e., higher payments) than is common for property loans.

Now, maybe this really works. I would urge, however, that you compare the total cost of buying a big whole life policy and then borrowing back the cash value to spending much less on a term policy with the same death benefit and just using the money directly. If you want to collect the interest, structure it as a loan between you and yourself. That way you're paying the interest and collecting it, too. Which is exactly the point of using a whole life policy or a 401k loan. And, you cut out the insurance company middleman, who, you can rest assured, it taking a cut out of your loan.

Hey Guys,

The best explanation I've seen on this topic, also known as "Private Equity Banking", made possible by Internal Revenue Code 7702, which enable you to deposit money into a privately insured savings account, also known as a cash value insurance contract.

You earn interest or dividends on your money you deposit as well as the money you borrow - all without taxation or reporting to the IRS. I am not affiliated with this site nor company but it does give the best explanation (via video) that I've seen. Hope this helps. www.http://webprez.com/3347/37#.

As a recovering insurance agent, I can tell you that the Infinite Banking concept and whole life insurance policies have pluses and minuses. One big factor with whole life policies is that the policyowner has to keep the policy in place until the insured dies or else the money withdrawn (in excess of what is put in) becomes taxable.

The issue of life insurance is really complex in terms of the amount needed and the type of policy that best suits the needs of the individual. I found that a combination of both term and permanent (whole life or universal life or variable universal life) serves most people well.

With regards to Infinite Banking, the policy owner has to fund the policy with a lot of dollars in order to then take the some of the dollars out as a loan. This defeats the purpose. Why put in a lot of money when credit availability is tight?