All Forum Posts by: Steven Nguyen

I do both real estate, stocks (specifically Vanguard index funds and apple stocks), and indexed universal life insurance.  I currently have a high paying job of ~200k but plan to retire in 10 years if possible.  For stocks, I have a very boring and bland strategy, every 2 weeks I will automatically invest $500 into 3 Vanguard index funds (Total US Stock Market 60%, Total International Stock Market 20%, and Total Bond Market 10%).  I don't time the market, but rather am IN the market for a long time.  The average is 7%/annually with dividends reinvested.  With every 2 week investments, it helps me dollar cost average and makes it a very passive investment for me.  Indexed universal life insurance is the same concept.  I max fund my policy to allocate more towards cash value then the cash value is invested into index funds (S&P500) with a floor of 0.75% and ceiling of 13%.  After about 15 years when the cash value builds up and fees start to drop off. you can use for "infinite banking" or pull money out as a loan that is tax free to retire early or invest in real estate.  My focus on real estate is value add and equity more so compared to cash flow since I am still working.  For example, I will buy houses and add bedrooms/bathrooms or build ADUs in the backyard to "force appreciation".  I hope to build up as much equity as I can in the next 10 years then deploy that equity into index funded or indexed universal life insurance, once I want more passive investments.  I hope this helps in anyway.  Thank you.

I'd personally keep the home, rent out the property, and do a seller financing agreement on her equity to pay her a negotiated interest with term length. I'd then down 3.5%-10% depending on how much reserve you have to purchase a new SFH or 2-4 unit building.

You are able to allocate 75%+ of a few paychecks if you are planning to max out the 401k.  I've done it on Voya and Transamerica.  Your best bet is to call Fidelity directly and inquire for assistance.

On a side note, have you considered using tax free investment vehicles - ROTH 401k/IRA, HSA, or indexed universal life insurance? If you are a buy and hold real estate investor like myself, we will likely be in higher tax brackets when older vs today as the 30 year mortgages are paid off. I'd rather pay the taxes on the seeds vs harvest and get the taxes over with today. As such, I max out my roth 401k, roth IRA, and indexed universal life. Just some food for thought.

Im a real estate investor (4 rentals) and own variable universal life (VUL) and indexed universal life (IUL) policies for about 1 year now. As such, I hope to provide a balanced view about VUL and IUL policies and how it relates to real estate, taxes, and long term wealth.

"Whole life insurance policies" aka VUL/IULs, like real estate are long term assets and need to be viewed with an at least 30 year horizon. The premium expense is based on your age and health status - the young and healthy individuals will have lower premiums compared to older individuals with health conditions (i.e - diabetes, hypertension, etc) for the same 1 million dollar policy. When purchasing a VUL/IUL, you can minimally fund the policy (not recommended as the policy may lapse), target fund the policy (usually this is quoted by life insurance agents), and maximally fund the policy (recommended if you want to build a large tax free investment vehicle). For example, in a 1.5 Million IUL - minimally fund = $700/month, target fund = $900/month, max fund = $2800/month - there is a huge range from $700-$2800/month for your premiums.

Based on your premiums, there are multiple fees:

1. Cost of Insurance (COI) - As you get older, the COI goes up

2. Per unit charges (PUC) - This is a flat fee that lasts 10 years

3. Premium Expense Charge - 4% of your total premiums (i.e if put in 30k then charged $1200/year)

4. Rider Charges- Typically have long term care riders which kicks in if you become disabled and unable to work (~$340/year)

5. Monthly Policy Fee - ~$12/month

6. Indexed Account Monthly Charge- 0.06% of index account value

After you pay your premium, the money is divided into 2 buckets - one is used to pay all 6 fees listed above and the other is called your cash value bucket which gets invested into index funds (i.e - S&P500 or international index fund). Going back to the 1.5 Million dollar example above and let's say for convenience the total monthly fee of all 6 fees is $500/month. If you min fund the policy with $700/month, your cash value bucket will only have $200 ($700-500). If you max fund the policy with $2800/month, your cash value bucket will have $2300 ($2800-500) which gets invested into index funds. Most index funds average 7% growth over the long term.

Indexed universal life insurance has a floor and ceiling. With a 0.75% floor, if the stock market goes down 10% in 1 year, the insurance company will still credit you 0.75% based on your cash value (this is better than what most banks offer for savings/checking accounts); however, with a 13% ceiling, if the stock market surges 30% in 1 year, you will be capped at 13%. Please keep in mind the S&P500 averages 7% growth per year which is within the ceiling and window.

Variable universal life insurance has no floor and no ceiling so you will ride along with the market. VULs are considered more aggressive and should only be considered after you own an IUL.

VUL/IULs provide "tax free" distributions via loans. The IRS cannot tax loans. For example, in years 1-10 of the policy, there is a 2.75% interest loan charge, but at the end of year, you will be credited 2%, for an effective 0.75% interest rate. For years 11+ of the policy, there is a 2.% interest loan charge, but at the end of the year, you will be credited 2%, for an effective 0% interest rate. This is where the infinite banking concept comes into play - imagine getting a tax free loan with 0.75% interest to invest in real estate with 10% cash on cash return which is a net gain of 9.25%.

Lots of people (i.e - Dave Ramsey) hate life insurance due to high fees and advocate to buy term and invest the difference. This is true if you view life insurance with a <20 year view and minimally fund the policy; however, if you view life insurance with the perspective of >20 years and max fund the policy, that's when you will benefit the most. With max funded policies, the cash value bucket will grow on average 7% per year and eventually the 7% interest will be more than enough to cover all the 6 fees (PUC fee drops off after 10 years). Over the lifespan of a 30 year IUL/VUL, the average fee is about 1% which is around the same cost of most mutual funds. For example, if you average 7%/year with 1% in fees, you are netting 6%/year essentially.

I have around 2 million in mortgage debt and have a 1.5 million IUL policy. Since I have a high income, I can manage my 2 million dollar debt, but if I were to suddenly pass away, my retired father would have to inherit my 2 million dollars in debt. To prevent him from selling off my assets, he would have a lump sum of 1.5 million to keep my assets afloat. If I were to become disable and unable to work, the IUL will allow early distributions of the death benefit to help me sustain my real estate. If nothing were to happen (ideal path) and the policy has been max funded for 20 years, I can have tax free distributions or can implement infinite banking to use the cash value within life insurance to buy more real estate if I want. Infinite banking only works if you have a large cash value which takes at least 20 years to build up.

Lots of people like funding a traditional 401k because they believe they will be in a lower tax bracket in retirement; however, if you own rental real estate with a 30 year mortgage, by the time you retire, the mortgage will be completely paid off and you will lose lots of valuable tax deductions. For me personally, I imagine I will be making more when I'm 60 vs 30, so I'd rather get the taxes over with today and transition that money into a tax free vehicle. ROTH 401k/IRA are also tax free; however, the money is not very liquid unless you pay the 10% penalty. With an IUL, you can get the money within 3 days without a penalty.

Lots of real estate investors refinance there paid off properties or high equity properties which is idle money and transition them into a max funded IUL to mobilize their money again. Imagine refinancing a property at 3% interest rate (revives your tax deductions) and transitioning the money into an IUL that charges a 1% fee but averages 7%. Since the money is in an IUL, it will be liquids vs in real estate which isn't as liquid. The value of your properties goes up or down regardless of how much equity you have, but if the equity can be mobilized to grow at 7% and become liquid, it may be advantageous. Once investors don't want to purchase anymore properties, the equity is deployed to life insurance.

Lots of high net worth individuals use IUL/VUL to cover their estate taxes. If you are worth over 23.4 million and live in CA, anything in excess will be taxed at 40%. If you are worth 43.4 million, you will pay 40% tax on 20 million (8 million) to the IRS within 9 months. With IUL, it creates an immediate lump sum to help cover the estate tax.

All in all, I own rentals, IUL, VUL, roth IRA, traditional IRA, and normal brokerage account. Life insurance isn't for everybody, but it is a valuable tool if used correctly and should be considered to complete the investing puzzle.

For any questions or more specifics about my policy, please message me directly. I hope this opens some eyes. Thank you.

 Hello Gabriel,

If you do not have many obligations (i.e- wife, kids, etc), 3-6 month emergency fund is sufficient. If you have many obligations, a 6-12 month emergency fund is recommended if it helps you sleep better at night. For me personally, I have many different money reserves that are highly liquid, but are still working for me vs sitting in a bank account. I have 3 months of cash reserve in my banking account, 9 months of cash reserves in an indexed universal life insurance policy (money can be accessed within 3 days by taking a loan against your policy), 2 years worth of brokerage index funds, and a HELOC (not really a reserve, but is liquid).

I am a real estate investor (4 rentals) and own variable universal life (VUL) and indexed universal life (IUL) policies for about 1 year now.  As such, I hope to provide a balanced view about VUL and IUL policies and how it relates to real estate, taxes, and long term wealth.

"Whole life insurance policies" aka VUL/IULs, like real estate are long term assets and need to be viewed with an at least 30 year horizon. The premium expense is based on your age and health status - the young and healthy individuals will have lower premiums compared to older individuals with health conditions (i.e - diabetes, hypertension, etc) for the same 1 million dollar policy.  When purchasing a VUL/IUL, you can minimally fund the policy (not recommended as the policy may lapse), target fund the policy (usually this is quoted by life insurance agents), and maximally fund the policy (recommended if you want to build a large tax free investment vehicle).  For example, in a 1.5 Million IUL - minimally fund = $700/month, target fund = $900/month, max fund = $2800/month - there is a huge range from $700-$2800/month for your premiums.

Based on your premiums, there are multiple fees:

1. Cost of Insurance (COI) - As you get older, the COI goes up

2. Per unit charges (PUC) - This is a flat fee that lasts 10 years

3. Premium Expense Charge - 4% of your total premiums (i.e if put in 30k then charged $1200/year)

4. Rider Charges- Typically have long term care riders which kicks in if you become disabled and unable to work (~$340/year)

5. Monthly Policy Fee - ~$12/month

6. Indexed Account Monthly Charge- 0.06% of index account value

After you pay your premium, the money is divided into 2 buckets - one is used to pay all 6 fees listed above and the other is called your cash value bucket which gets invested into index funds (i.e - S&P500 or international index fund).  Going back to the 1.5 Million dollar example above and let's say for convenience the total monthly fee of all 6 fees is $500/month.  If you min fund the policy with $700/month, your cash value bucket will only have $200 ($700-500).  If you max fund the policy with $2800/month, your cash value bucket will have $2300 ($2800-500) which gets invested into index funds.  Most index funds average 7% growth over the long term.

Indexed universal life insurance has a floor and ceiling.  With a 0.75% floor, if the stock market goes down 10% in 1 year, the insurance company will still credit you 0.75% based on your cash value (this is better than what most banks offer for savings/checking accounts); however, with a 13% ceiling, if the stock market surges 30% in 1 year, you will be capped at 13%.  Please keep in mind the S&P500 averages 7% growth per year which is within the ceiling and window.

Variable universal life insurance has no floor and no ceiling so you will ride along with the market. VULs are considered more aggressive and should only be considered after you own an IUL.

VUL/IULs provide "tax free" distributions via loans.  The IRS cannot tax loans.  For example, in years 1-10 of the policy, there is a 2.75% interest loan charge, but at the end of year, you will be credited 2%, for an effective 0.75% interest rate.  For years 11+ of the policy, there is a 2.% interest loan charge, but at the end of the year, you will be credited 2%, for an effective 0% interest rate.  This is where the infinite banking concept comes into play - imagine getting a tax free loan with 0.75% interest to invest in real estate with 10% cash on cash return which is a net gain of 9.25%.

Lots of people (i.e - Dave Ramsey) hate life insurance due to high fees and advocate to buy term and invest the difference.  This is true if you view life insurance with a <20 year view and minimally fund the policy; however, if you view life insurance with the perspective of >20 years and max fund the policy, that's when you will benefit the most. With max funded policies, the cash value bucket will grow on average 7% per year and eventually the 7% interest will be more than enough to cover all the 6 fees (PUC fee drops off after 10 years).  Over the lifespan of a 30 year IUL/VUL, the average fee is about 1% which is around the same cost of most mutual funds.  For example, if you average 7%/year with 1% in fees, you are netting 6%/year essentially.

 I have around 2 million in mortgage debt and have a 1.5 million IUL policy.  Since I have a high income, I can manage my 2 million dollar debt, but if I were to suddenly pass away, my retired father would have to inherit my 2 million dollars in debt.  To prevent him from selling off my assets, he would have a lump sum of 1.5 million to keep my assets afloat.  If I were to become disable and unable to work, the IUL will allow early distributions of the death benefit to help me sustain my real estate.  If nothing were to happen (ideal path) and the policy has been max funded for 20 years, I can have tax free distributions or can implement infinite banking to use the cash value within life insurance to buy more real estate if I want.  Infinite banking only works if you have a large cash value which takes at least 20 years to build up.

Lots of people like funding a traditional 401k because they believe they will be in a lower tax bracket in retirement; however, if you own rental real estate with a 30 year mortgage, by the time you retire, the mortgage will be completely paid off and you will lose lots of valuable tax deductions. For me personally, I imagine I will be making more when I'm 60 vs 30, so I'd rather get the taxes over with today and transition that money into a tax free vehicle. ROTH 401k/IRA are also tax free; however, the money is not very liquid unless you pay the 10% penalty. With an IUL, you can get the money within 3 days without a penalty.

Lots of real estate investors refinance there paid off properties or high equity properties which is idle money and transition them into a max funded IUL to mobilize their money again.  Imagine refinancing a property at 3% interest rate (revives your tax deductions) and transitioning the money into an IUL that charges a 1% fee but averages 7%.  Since the money is in an IUL, it will be liquids vs in real estate which isn't as liquid.  The value of your properties goes up or down regardless of how much equity you have, but if the equity can be mobilized to grow at 7% and become liquid, it may be advantageous.  Once investors don't want to purchase anymore properties, the equity is deployed to life insurance.

Lots of high net worth individuals use IUL/VUL to cover their estate taxes.  If you are worth over 23.4 million and live in CA, anything in excess will be taxed at 40%.  If you are worth 43.4 million, you will pay 40% tax on 20 million (8 million) to the IRS within 9 months.  With IUL, it creates an immediate lump sum to help cover the estate tax.

All in all, I own rentals, IUL, VUL, roth IRA, traditional IRA, and normal brokerage account. Life insurance isn't for everybody, but it is a valuable tool if used correctly and should be considered to complete the investing puzzle.

For any questions or more specifics about my policy, please message me directly.  I hope this opens some eyes.  Thank you.

What are the pros/cons of Retail vs Office? In Orange County, CA, office seems to have better CAP rates compared to retail. Has COVID impacted either retail or office?

 What type of commercial RE do you focus on?