All Forum Posts by: Mike S.

You can set up a land trust with you as trustee, but you lose the anonymity in that setup.

You can also set up an anonymous LLC as trustee. And you are the manager of the LLC.

Or you can use a trusted third party as trustee, like your attorney. The trustee will only have to intervene if you want to sell or refinance the property. You can also use him for signing public documents like building permit application. The beneficiary of the land trust can collect the rent and manage the property directly. Or you can also set up a management property corporation that will do that too.

Land trust are very powerful tools that have many uses. They are cheap: a few hundred dollars to set up, or even free if you do it yourself (but please check with a local attorney for the first one as there are many traps you want to avoid). They are very versatile: you can assign the beneficiary privately, a lender can avoid the foreclosure process if the loan was on the trust beneficial interest as it is personal and not real property, you can assign portion of the beneficial interest to your heirs piece by piece to stay within the annual gift tax exclusion for estate tax avoidance, ...

However they are a pain in the *** to deal with when dealing with a lender as most of them don't know about them. One trick is to restate the land trust as a living trust for the transaction and restate it as a land trust after the transfer.

If you want to learn more about them, I would suggest the fantastic Clint Coons Youtube channel.

I'm not sure I understand you. The rate of return is independent of your wealth. In any case it will take a few years to absorb the initial fee.

As long as you can commit enough money each year to the policy for enough number of years you will be ok. If you can commit only $5k a year, then the policy will be built for this $5k. If you have $500k a year to commit, then the policy will be built for it. Where you get in trouble is if you plan a policy for $100k a year, and you only put $20k in it for multiple years...

To minimize the fee of this product, the best set up is to have the same amount of money to put into it every year for at least five to seven years.

In my view, you would need to commit at least $2,000 a year to get a reasonable maximum overfunded life insurance policy. But be aware that with that low amount, you won't be able to find a third party bank to loan you money as most of them won't bother with such low amount loans. So while you can start a policy that low, it will take a few years before you can really use it to its maximum benefit.

A $10,000 a year policy is better, and can also be a very good for retirement. While a Roth 401k or Roth IRA can give you tax free income during retirement, you will not draw more than 4% per year out of it if you want to make it last 20 to 30 years. With a maximum overfunded life insurance policy, as you are not withdrawing money, but borrowing against it while the full value continues to grow, you can safely take up to 8% income tax free each year until you are 120 years old.

A $50,000+ a year policy will give you access to more third party lenders options, and also at this level, you can get access to better outside investments offers.

You could use the same concept with a savings account if:

- the savings account was giving you a return in the 4~8%,

- a bank would accept to give you a loan at 3~5%, based on the collateral of your savings, while your whole savings account is not touched.

And that is what is difficult to understand in this concept, when you are taking a loan out of your policy, you are not borrowing from yourself. You are taking a loan from a third party (the insurance company or a bank), that is secured by the cash value in your life insurance. So the full cash value is continuing to grow unimpeded.

So let's take the following example:

You have $100,000 in cash value in an Index Universal Life Insurance.

During that year your return on the index has been 7%, but after the cost of the insurance your net gain was 6%*. So your cash value at the end of the year would be $106,000.

You take a loan, secured by your cash value, of $90,000 at 3.5% from a bank that you reinvest in a syndication that is giving you a 10% cash on cash return.

You would pay the bank $3,150 in interest that year

Your syndication investment will give you a return of $9,000

If you are in the 35% tax bracket, you will have to pay tax on ($9,000-$3,150). The gain on the life insurance is tax free.

So your net gain, after tax, on your syndication will be $3,802 and your gain on your life insurance will be $6,000. A total of $9,802.

Would you have invested directly the $100,000 in the same syndication, without the life insurance, your net after tax gain would only have been $6,500.

So with the life insurance, you get more money, and on top of it you also have a life insurance that will give your heirs tax free money when you die.

*The cost of life insurance is heavily front loaded, and the first few years the yearly total cost of the insurance may be as high as 15%, in later years, it may be as low as 0.25% a year. Averaged over the life of the policy, the cost is usually between 0.5 to 0.75%.

@Sean Ruggiero

Maximum overfunded life insurance is a long game play.

You need to be disciplined and learn how to use it properly as it is a complex product that can be expensive if misused.

When part of a system where you use policy loans to reinvest, it becomes a wealth multiplier that gives you on top of it a life insurance for your family.

And when used for retirement income, it will give you more tax free money than a Roth IRA or 401k.

Don’t limit your study to whole life insurance but look also at index universal life insurance too. Both of them can be used for this purpose, the IUL having a better long term return (5~8%) with more volatility while the WL having a lower (4~6%) but steadier return.

@David Cozzi

You are using multiple LLC to insulate each asset from each other.

If you put all your properties in one LLC, any inside liability rising from any of them can jeopardize all of them.

By using a different LLC per property, the most you can loose is one property.

Liability insurance will not protect you from everything. Insurance and LLC are not exclusive and in fact are both highly recommended.

I would suggest that you dig into the hours of excellent YouTube channel videos from Clint Coons that will explain all these concept in depth.

@Matt Everling

I have used two in the past for WY series LLCs:

https://wyomingllcattorney.com

https://andersonadvisors.com/

Different price point and scope of service, but happy with both.

Regards

You can get up to 10 conventional loans under your name, so having this one will not create an issue on that front to add a second one later.

You will not be able to buy the property under an LLC name at closing as your loan will probably require to have it in your name. You can get commercial loans under LLC, but they are more expensive, and you will have to offer a personal guarantee anyway.

If you want to transfer the title of the property after closing to an LLC, the loan will stay under your name anyway as your lender will not allow for the assumption. Also, if you transfer title to an LLC (especially a multi member one), it is a real possibility that your lender will call the due on sale clause and require full payment of the balance.

When you open a new loan, your credit score will dip initially as your loan balance to max loan ratio is at 100%. After six month to a year, your score should start climbing again. Over a few years, the loan will probably increase your score. Your credit score is really important for the APR that lender will offer you.

One of the main issue when opening a new loan is your debt to income ratio. Because you will have a higher debt with this first loan, you may be above the DTI allowed by the lender for the new loan. You may argue that your income will go up due to the rental income, but don't forget that: lender look at the past two tax return and it will take over two years to get this new income to count. And also passive rental income is not counted for its full cash flow value by lender as most will only look at your taxable income return that is way below your net cash flow due to the depreciation. Last but not least, because you are investing with other family member, not all the income from the property will go to you despite having the full loan responsibility on your credit.

So yes, taking that loan will create a burden for your future loans, and especially more in the short term.

@David De La Cruz

Each bank have their own application process and will pull your credit. However, multiple credit pull within a short time frame (around two weeks) won’t damage your credit score as they will be aggregated as one.

You can also call the banks by phone and they can give you a good estimate on what they can offer based on your credit score and house estimated value. They will tell you what are their closing fee, maximum LTV and APR based on the LTV and credit score range.

Also each bank will get their own appraisal that can fluctuate widely depending on the appraiser. I applied for a HELOC on a property and their appraiser came back with a value 40% lower than my estimate. To appeal it I would have had to pay for another appraisal and they would have taken the median price between both.

I went with another bank that gave me another appraisal only 5% below my estimate value, but this bank had an APR a little bit higher than the first one.

@Derrek Wiedeman

When the bank will discover it they may either freeze your line of credit or worse invoke the due on sale clause and request immediate payment of any outstanding balance.

The freezing of a HELOC is unfortunately very easy for the bank to do for any reason, like if you loose your job or change risk profile. And historically, some banks are known to do it often. So, while a HELOC is a good source of cash for your investment, if you want to commit to a deal, get the cash out of the HELOC early loosing a little bit of interest payment, instead of risking loosing much more when you discover on closing day that you can't use it.