All Forum Posts by: Mike S.

@Nathan G.

Do NOT use a quit claim deed. Use a warranty deed instead to avoid voiding your title insurance.

Depending on your state and county, the transfer of the property may result in transfer tax and a reassessment for tax purposes. In some locations you need to contact your tax appraiser to notify them that the final beneficial ownership is not changed to avoid extra taxes.

In some states it may be advantageous to use a land trust first to avoid these problems.

Once your transfer is done, you will need to update all your insurances to make sure that the name insured is now the LLC with you now becoming an additional insured.

@Srinivasa Murthy

Just google it. You will find plenty.

@Aakash Deol

It is a long term strategy as the first four to six years, the upfront cost of the policy will give you a negative yield. Past that initial burden, you can expect an IRR between 3 to 5% with a whole life policy and 4 to 7% with an Index Universal Life policy.

These policies need to be set up properly to be maximum overfunded and only a few insurance agents are knowledgeable and willing to offer them as they are lowering their commissions doing so.

@Srinivasa Murthy

I will go against the previous posters thoughts and will argue that you should get an LLC per property. Spending $100 a year to get liability and asset protection is a cheap insurance.

Will an LLC protect you against act where you are personally responsible? Of course not.

But will an LLC protect your personal assets against a major lawsuit arising from a tenant claim? Yes

Are there cases of piercing the veil of the company? They are extremely rare and results from gross mismanagement of the member/owner that can be easily avoided.

Now, if you have a personal liability attack against you (your kid is involved in a vehicle homicide for instance), an LLC in a charging order state will protect your real estate from being taken away from you.

Last if you use anonymity protection with an LLC, you will avoid a lot of possible nightmare stories of harassment, threats, vandalism, libel to your home, work and social media by a disgruntled tenant.

It may also protect you from frivolous lawsuits as an asset search by ambulance chaser lawyers will return nothing.

To answer your questions:

Yes if your LLC is disregarded for tax purpose, there will be no change to your tax return. Your LLC will collect the rent and then turn it back to you.

I would suggest that you watch Clint Coons YouTube channel that goes in depth in asset protection for real estate investor and the proper use of LLC.

Quote from @Todd Goedeke:

@Mike S.you neglect to talk about the cost of life insurance that is subtracted from earnings or is a drag on growth of cash value. Every year you grow older the cost of insurance increases.

As an individual, not a business tell me on what tax form or schedule you deduct the interest you paid. 

While I did not mentioned in that specific thread the upfront fee, you can see it more detailed in my other posts. Yes there is a front loaded fee that will give you an initial drag that will take usually 4 to 5 years to overcome. This is a long term strategy. While the cost of insurance increase when you get older, the growth of your policy exceed the cost of insurance. Also when you stop funding it, you will reduce the death benefit to the MEC limit, a that time the yearly cost of your policy will be approximately 0.25%~0.50%, way lower than most mutual fund or management fee in any retirement accounts. Minimally funded IUL have a risk of imploding if the cost of insurance rise higher than planned. In the case of a maximum overfunded IUL, this risk is non existent.

When you are borrowing money with a HELOC to reinvest, you can deduct the interest of your HELOC from the proceed of your investment. It is the same when you borrow from a lender that uses your life insurance cash value as a collateral (however it is not the case when you borrow directly from the insurance company). As long as you can trace the use of the borrowed fund to another investment your interest expenses will be deductible. Depending on the type of investment, your investment income and expenses may be reported on different forms.

Quote from @Dominic Bailey:

I recently signed up for iul. However now I'm hearing stories that they may be a scam or some type of pyramid scheme. Does anyone have any experience with them

IUL can be great products, but like all great products, you need to find the right one. If you are looking for maximum overfunded IUL some insurance companies have way better products than others. Some IUL may be great for death benefit, but not for cash value accumulation. Some companies also have only recently entered the IUL market and don't have a long history and their illustration may be too optimistic. Some other companies are known to lower their cap rate more than others over the years. Also you need to find a good insurance agent who knows how to set them up properly to lower your cost and increase the long term growth.

I am using IUL myself in conjunction with my real estate investments and I recommend them to other investors. They are complex products and need to be understood fully as it is a long term game: you need to stay consistent and committed for a number of years. If you deviate from the game plan, the return will be poor and you can even have policy issues later on if you underfunded it.

Quote from @Todd Goedeke:

You don t get a return on the money you are borrowing from the UL policy. You are paying interest on what you borrow no different than borrowing vs stocks held in your brokerage account or taking a HELOC loan vs the equity in your house.

Not exactly correct.
When you are using your cash value as a collateral, your FULL cash value still continue to grow in the life insurance.
At the same time, the money that you borrowed can be reinvested in any third party investment, like the STR mentioned. Yes, the total return of this investment will be lowered by the interest you are paying, but this interest is also tax deductible.
So yes, your money grows at two places at the same time.

It is, as you mentioned, the same as with an HELOC.

Quote from @Todd Goedeke:

The returns of a life insurance product ,InfinityBanking,are far inferior to direct investing. Anytime a middle man such as an insurance company or RE syndication is involved there is no way you will get returns as high as directly investing in RE. 

Yes the direct return is much lower (in the 4 to 8% range depending if you are using WL or IUL). But the beauty of it, is that you get that return AND you can use the same money, at the same time, to invest in other direct investment like STR you mentioned.

I am using both;

If you are eligible for a solo 401k, I would highly recommend it instead of a self directed IRA. No UBIT, much less fee to manage, and higher contribution limit.

The permanent overfunded life insurance is my biggest bucket. All my cash flow goes toward the premium, and I am using the cash value as collateral for a loan at prime rate to reinvest. Not only can I deduct the interest of the loan, but also my money grows at two places at the same time...

Quote from @Matt Appel:

Life insurance policies are also great for asset protection! 

Life insurance are protecting your cash but not your assets.