All Forum Posts by: Mike S.

Is there a comprehensive list of state tax filing requirement for passive real estate income? Which states require filing, is there some level of income under which you are not required to file, etc...

Also, in the same token, what about state filing for tax advantaged accounts (SDIRA or solo 401k)? I am aware of the federal filing requirements for both (UDFI taxes on SDIRA, UBIT on both, and form 5500 for solo 401k above $250k, ...). If you don't trigger any federal filing requirement, are states following the same guidelines. If my solo 401 has passive income from properties in multiple states, which one does require a state filing when no federal filing is required?

Originally posted by @Bruce Woodruff:

Originally posted by @Ray Martinez:

Yes, the purpose would be to shield from liability. 

But it doesn't do any more than a good insurance policy.....

Not true.

A liability insurance is a must but will not cover you against all risks.

For inside liability risks, a liability insurance may cover you up to their limit, but your personal assets are at risk if your insurance is refusing to cover you (read the many, many pages of exclusions of your policy) or if the claim exceed your policy limit.

For outside liability risks, if you don't have coverage from your personal liability and/or umbrella you may not be covered either.

An LLC put your assets in different boxes and insulate each box from each others. So you are limiting the total risks to one box at a time.

Insurances, asset striping and entities are all complementary but not similar asset protection tools. All of them need to be used in conjunction for a comprehensive structure giving you asset protection.

Now some people will tell you they are not using insurance nor any asset protection at all and have done well for years, some other will tell you horror stories about losing their shirt on a devastating lawsuit. At the end of the day, it is your own decision on what risk you want to assume and that will keep you sleep at night.

Originally posted by @Ben Zimmerman:

Please quote me which insurer that allows for a loan at cheaper interest rates than the guaranteed growth rate from the funds inside the insurance policy.  Any policy I have ever seen that allows the cash value to continue to grow usually charges between 5-10% interest.  The only accounts I've ever seen with loans under 5%, there are very serious side effects of how the cash value in those accounts grows.

I have never said that it was a loan from the insurance company. I have mentioned third party lenders. They offer sub prime loans up to 90% of the cash value of your policy. Also you specifically don't want to use a policy loan but a third party lender if you want to deduct the interest.

Most insurance companies will offer policy loan at the same rate than the growth after 10 or 20 years. These wash out loans are useful in LIRP setup when you are using loans during retirement for income.
With IUL you also have many companies offering variable loan rate that most of the years will have lower interest than the gain in the policy.

Originally posted by @Ben Zimmerman:

In IB, it is always touted (including by you) as a way to use the velocity of money to double dip investments.  And while it's true that you continue to earn 5-6% on your funds while you take out a loan against your life insurance, the problem is that you are earning 5-6% in interest, but usually PAYING 7-9% in interest to access what otherwise was your own money had you just not put it into the insurance product in the first place. 

When you get a loan from lender that is collaterized by the cash value of the life insurance, you can find rates at prime +- 0.25%. So around 3%, interest only. On top of it, because you are using the proceed of the loan to reinvest, you can deduct the interest as investment expense. So you get 3 to 8% gain a year, tax free, in a safe asset, while at the same time you can use the same money to invest in other more fruitful assets. On top of it, you get a life insurance that will protect your family.

While the initial cost of the life insurance seems to be a hard hit on your money, you need to look at the IRR long term. The IRR does account for the cost of money and can be compared between different investments. When you invest in the construction of a new building, it may take a few years for you to get in the black. Permanent life insurance is no different, you will be in the red for the first few years. But on the long run the IRR is correct, and it does not really matter if the gain was made year 1 or 4.

Originally posted by @Account Closed:

Maybe. But I bet you I can find a better less complicated and cheaper way to get all the above benefits with a combination of term life (for actual insurance) and investing the rest in a brokerage in Roth IRAs and taxable accounts invested in simple index funds which you can also borrow tax free against. In general the more complex the contract the less benefit you as a consumer will gain. Term life is a simple contract. You pay a premium and if you die your beneficiaries get paid. It is no different than your car insurance or homeowners insurance. Offloading risk. Anything else is not insurance.

On the short term, cheaper probably as term life insurance is cheap when you are young. However on the long term, not only will you not be able to find cheap term insurance when you are getting older, but also a permanent life insurance will give you more money back than a term life. So with permanent life insurance you get free insurance as it is paid for by the increasing return.

A Roth IRA has a low limit of $6k premium per year, and if you are a high income earner you can't even pay into it.

A brokerage account is not tax free, and historically the S&P500 returns on the long term has been in the 7%-9% range pre tax. Depending on your tax bracket that could be equivalent to a 4 to 5% post tax. And it is with all the volatility, including correction time when it can drop more than 30%. It takes decade to recover from such a correction, and if you need money during that time you are in a very bad position. In a permanent overfunded life insurance you will not have corrections. Only positive gains.

Margin loans are very risky and subject to margin calls. Of course if you only borrow 20% of the value of your portfolio, you are safer, but in no way can you borrow 90% of it like in a permanent life insurance.

I do have a brokerage account, a Roth IRA, a 401k but I also have an IUL where I put all my cash flow. One is not exclusive to the other, and a wise investor should diversify his assets.

Originally posted by @Account Closed:

Term life insurance has its place, but it is an expense as you will not get your money back unless you die prematurely.

Whole Life or Index Universal Life will return much more than what you put in it. There is a certainty of you dying eventually. So there is a certainty of your heir receiving the death benefit.

Permanent life insurance can be used for estate planning, tax optimization, asset protection on top of insuring your loved ones financial security if you are dying earlier than expected.

With a maximum overfunded permanent life insurance, you can also get some living benefit and use it for investment purpose as collateral for loans (while it continues to grow). You can also use it for getting tax free income during retirement. There are multiple ways of using this excellent safe, liquid, tax free, asset protected place to put your money. All life insurance contracts are not the same, and you need to find an agent who knows and is willing to set a properly structured maximum overfunded permanent life insurance contract.

Regarding stable crypto coins interest accounts, I am using Gemini, BlockFi and Celsius. They are ranked from lower interest to higher, but also from safest to riskier. There are other players and it is an extremely active market, so research a lot and stay up to date on users' forum to get the latest information.

For maximum overfunded permanent life insurance, I personally prefer Index Universal Life insurance as, on the long run, they will provide higher return than Whole Life insurance, but may, in the short term, have more volatility. There are only a few insurance companies that I would recommend for either IUL or WL. However, you need to find a good life insurance agent who understands how to properly set up these kind of policies. Not every insurance agent knows how to do it, but also most are not willing to as, if properly set up, it will lower their commission. Also something to be aware of, the commission is set by the insurance company. So for the same policy set up with the same insurance company, you will get the same cost whichever agent you choose.

@Erick Caffarello

A few national banks and many regional or local ones are offering HELOC on investment properties.

It become more difficult if your properties are not owned in your name, or if the LLC is not a disregarded one.

Also the fact that your property is vacant currently and for renovation is another hurdle for some banks and insurances.

But continue to search and you’ll find some.

That is one of the reason that my companies have multiple bank accounts with many local credit union to build a relationship with them as they are more encline to help me with these exotic loans.

@Deanna Opgenort

Be careful with HELOC as banks have closed them without notice in the past. It is disastrous to discover it when you need the money that they froze your line. So don't put all your faith in it. They are good products and I am using them, but I don't count them as emergency reserves.

Same with brokerage margin accounts. brokers change the margin level when a stock become volatile, and a margin call can be catastrophic for your account when you have to fire sell.

@Andrew Freed

I am in the camp of the IUL vs Whole Life.

You need to find a good agent who understand maximum overfunded permanent life insurance.

Two YouTube channels that I recommend:

Tom Rutkowski

IBC Global Inc

The first one will give you a lot of good insight on IUL. The second one will have more information on WL.