Seeking Advice on Structuring a $150K Loan for Property Investment via IUL Policy

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Seeking Advice on Structuring a $150K Loan for Property Investment via IUL Policy

Phil AveryPro Member

Investor · Houston, TX · Member since 2023 · 79 posts · 47 votes

Hello Everyone,

I am in the process of exploring a unique investment strategy and am seeking a loan of $150,000 at an interest rate ranging between 8-12% for a period of 5 years. My preference is for an interest-only loan, although I am open to an amortized payment schedule as well.

Purpose of the Loan:
The primary utilization of these funds would be to capitalize an Index Universal Life (IUL) Policy. The IUL Policy is intended to act as a revolving line of credit that will enable me to acquire real estate properties.

Security & Safeguards:
To secure the lender's interest, they would be named the primary beneficiary on the IUL policy. Additionally, the lender would carry a second-position lien on any properties acquired using this line of credit.

I would greatly appreciate any insights, recommendations, or potential challenges you might foresee with this structure.

Thank you for taking the time to read my post, and I look forward to your valuable feedback.

Best regards,

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Alejandro B Yoon

Investor · Austin, TX · Member since 2022 · 50 posts · 45 votes

Most lenders that I have seen are at a minimum of 12% with 3-5 points nowadays. You may need to shift your expectations as to your cost of capital.

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Jay ThomasPro Member
Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
3y
Your creative investment strategy has risks like interest-only loans in a declining market and complex IUL policies. Challenges include finding a lender familiar with IUL, meeting credit score requirements, affording fluctuating payments, and planning principal repayment. Seek advice, start small, and be patient for gradual real estate wealth.
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Alejandro B Yoon
Investor · Austin, TX · Member since 2022 · 50 posts · 45 votes
3y
Most lenders that I have seen are at a minimum of 12% with 3-5 points nowadays. You may need to shift your expectations as to your cost of capital.
1 Reply
Phil AveryPro Member
OP
Investor · Houston, TX · Member since 2023 · 79 posts · 47 votes
3y
Quote from @Jay Thomas:

Your creative investment strategy has risks like interest-only loans in a declining market and complex IUL policies. Challenges include finding a lender familiar with IUL, meeting credit score requirements, affording fluctuating payments, and planning principal repayment. Seek advice, start small, and be patient for gradual real estate wealth.

Thanks for chiming in.
I agree with the challenge of finding a lender who is familiar with IUL. That seems to be the biggest deterrent when it comes to speaking with lenders. I have a good amount of lenders willing to lend on real estate projects themselves, but not comfortable with the aspect of the policy being in place. I think its due to it not being a common investing approach.
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Phil AveryPro Member
OP
Investor · Houston, TX · Member since 2023 · 79 posts · 47 votes
3y
Quote from @Alejandro B Yoon:

Most lenders that I have seen are at a minimum of 12% with 3-5 points nowadays. You may need to shift your expectations as to your cost of capital.

Thanks for chiming in. While I am aware of hard money being at 12%, I was not aware of the additional 3-5 points on top. Thanks for sharing. I''ll continue to revise accordingly.
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Jared RineBusiness Member
Lender · Sacramento, CA · Member since 2009 · 1k+ posts · 277 votes
3y
@Phil Avery..as @Jay Thomas mentioned - the difficulty of this is finding a lender who understands and is familiar not only with an IUL, but with utilizing cash-value life insurance policies in a strategy at all. I understand what you're trying to do as personally I don't have an IUL, but I have a certain type of policy that I draw funds from, but I funded it myself. I also used to sell these policies, so I get it. That's likely what you're going to have to do - get yourself into a financial position to fund the policy and then draw against it/use it how you want, whether that's for RE projects, hard money lending, etc. If your credit is good and financials look solid, you might be able to get lines or credit or something to fund the policy. Just my $0.02
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Thomas RutkowskiPro Member
Financial Advisor · Boynton Beach, FL · Member since 2015 · 834 posts · 798 votes
3y
@Phil Avery
Why not just take a loan directly from the insurance company? It will be a much lower interest rate and it can be interest-only. Who is your policy with?
Otherwise DM me and I'll give you the name of a few banks that will do Cash Value LOC. They'll be happy for the business because everyone is refinancing out of their CVLOCs right now because policy loan rates are so much lower (4.5 -5%)
This is not as complicated as everyone is making it seem. If you have cash value, you can get a loan against it. End of story. A policy loan is the easiest way to access the cash value.
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Phil AveryPro Member
OP
Investor · Houston, TX · Member since 2023 · 79 posts · 47 votes
3y
Quote from @Jared Rine:

@Phil Avery..as @Jay Thomas mentioned - the difficulty of this is finding a lender who understands and is familiar not only with an IUL, but with utilizing cash-value life insurance policies in a strategy at all. I understand what you're trying to do as personally I don't have an IUL, but I have a certain type of policy that I draw funds from, but I funded it myself. I also used to sell these policies, so I get it. That's likely what you're going to have to do - get yourself into a financial position to fund the policy and then draw against it/use it how you want, whether that's for RE projects, hard money lending, etc. If your credit is good and financials look solid, you might be able to get lines or credit or something to fund the policy. Just my $0.02

Hey Jared, Thanks for sharing your insights. I agree with you. I will most likely have to find a way to fund the policy myself. Which is fine. I've been saving towards this initiative. I was trying to fast-track this strategy as I was getting tired watching several RE deals pass me by.

I think I will alter my strategy a bit and just work within the scope of traditional deals. At least that will allow me to take action now, while working towards funding this policy.
2 Reply
Matt Ruttenberg
Specialist · Grand Rapids, MI · Member since 2020 · 116 posts · 80 votes
3y
@Phil Avery
Sorry late to the show here. Sounds like you're trying to fund the IUL through a lender, correct?
This is called premium financing, but usually requires closer to $100k a year as a minimum premium amount. The lender will then be paid off in about 10-15 years or so. So not a good fit for you looking for quicker CV.
You also will want to fund it over the course of 5-7 years, not as a lump sum do to MEC rules and wanting to maintain the tax benefits for the lending you're looking for.
These tend to be longer term strategies, but can be very lucrative if it's designed properly. Feel free to reach out and I'll run the numbers to show you some examples.
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