All Forum Posts by: Thomas Rutkowski

@Brandon Plombon

That's a very shortsighted view. The Double Play is all about putting your money to work in two places at one time. Over time he will make more money than he would have if he put his money directly into real estate.

Example:

Assume you have a hypothetical investment that will earn 10% per year. Maybe a private money loan, for example. Assume the cash value is growing at 5%, you can borrow at 4% and you are in a 40% tax bracket.

If you borrow $100,000 against your policy and use it to make a private loan to a real estate investor at 10%, you will finish the year with $10,000 of interest income. You'll use $4,000 of that to pay the interest on the loan leaving you with $6,000 of taxable income. You'll write a check to the IRS for $2,400 for the income tax leaving you with $3,600 that was essentially created out of thin air... an infinite ROI. The cash value during this period would have earned $5,000 of dividends/interest-crediting. That's a total of $8,600 for the $100,000 policy loan.

On the other hand, if you just took $100,000 of your own money and did the same deal, you would make the same $10,000. This time though, you'll be writing a $4,000 check to the IRS leaving you with $6,000. 

So...

If we take the fees into account, would you rather have 85% of your money earning 8.6% or 100% of your money earning only 6%? It's important to understand that someone leveraging cash value IS going to build more wealth over time. You can't fight the power of compounding interest.

Not true. In a properly-designed, maximum over-funded life insurance policy, the cash value should be approximately 85% of the first year premium. You may be confusing a typical life insurance policy with a maximum over-funded policy.

@Ryan Geisler

Its important to understand that you are leveraging your cash value when you take a policy loan. This means that you have to have the cash value first. You'll still likely be looking at other sources of funding in addition to your policy loan. BUT, that said, leveraging a high cash value life insurance policy does allow you to earn an infinite rate of return on your real estate investments.  For example, if you borrow against your policy to get the money for a down payment and you rely on bank financing for the rest, you have no money of your own in the deal (your money is in the life insurance policy's cash value).

@Molly Plude

I use my own policy for leveraging into real estate investments. It is a way to put my money to work in two places at once. Just be aware that you need to make sure that your policy is designed for maximum cash value, minimum death benefit. This means that a properly-designed policy should have about 85-90% cash value/surrender value to premium when you are looking at the first year, first premium on your illustration. If the ratio is not that high, the difference is being lost to fees/commissions.

Policy loan interest is not deductible. I recommend getting a cash value line of credit from a 3d party bank. THAT loan will be for business purpose and the interest would be deductible. 

@David Thuve, You're not really using life insurance to purchase properties. You are leveraging the cash value of a maximum over-funded life insurance policy and using the borrowed funds to purchase real estate. When you do this you are quite literally putting your money to work in two places at one time. The key is making sure that the policy is designed properly for minimum death benefit and maximum cash value.

Hey @Kyle Keller

Check out these discussions...

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

Yes. Its complicated, but It absolutely works. 

@Greg M.

Your 9-5 may be insurance, but I don't think you understand what is going on under the hood of the policy. A return of premium term is going to be built on a Universal Life chassis. Where do you think the money is coming from?

@Jeff Johnton

Its plain old life insurance. You can do it with Term if you think the duration of the project will be less than the term of the policy. This is fine when you want to keep the cost down. Permanent life insurance will allow the company to cash in the policies and get most, if not all, of the money back when the insurance is no longer necessary. It depends how the policies are structured and how long they've had to accumulate cash value.

You want what is called an "Entity Purchase" buy-sell agreement. The company will purchase one policy for each partner with the company as the beneficiary. The company can then use the funds to buy out the interest of a deceased partner.

Each partner should buy insurance on the lives of the other partners. There should also be a formal buy/sell agreement to back it up. Group insurance doesn't work like that. The company can also purchase insurance on the lives of each partner with the intent to buy out a partners share if they die.