All Forum Posts by: Thomas Rutkowski

The downside of the deferred sales trust is that the seller doesn't have access to the sales proceeds to make the next investment. The sales proceeds are held in an irrevocable trust. Coupling a monetization loan with an installment sale may also reduce the tax cost of selling a highly appreciated asset and it puts money in your pocket that can be reinvested... THAT will help alleviate the time restrictions of a 1031 exchange.

@Craig Ebersole

You, and your spouse if married, are each entitled to a $250K capital gains tax exclusion on a principal residence. So unless you have more than $500K of capital gains, you may not have anything to worry about...

https://www.nolo.com/legal-encyclopedia/the-250000500000-home-sale-tax-exclusion.html

https://www.irs.gov/businesses/small-businesses-self-employed/sale-of-residence-real-estate-tax-tips

@Tanner Marsey - Your ROI on cash used to pay down a mortgage is ZERO. Compare zero to whatever you can do with all that money.

If you want to conceptualize it from a different perspective, the loan rate on your primary should be the cheapest money you can get. Think of the sales proceeds as if it were a loan. Can you invest that money and earn more than your cost of money? Business 101.

@Shadonna N. - Another strategy similar to the DST is coupling a monetization loan with an installment sale. A DST creates a stream of income similar to an annuity. Most people prefer cash in hand. That's what the monetization loan accomplishes. You can read more here...

https://www.biggerpockets.com/forums/51/topics/569293-can-i-use-100-bonus-depreciation-as-alternative-to-1031-exchange?highlight_post=3455810&page=1#p3455810

@Stephanie Martinson - If the seller does not want to pay the capital gains and wants to get out of real estate altogether, then coupling a monetization loan with an installment sale is usually the most efficient way to dispose of an asset. This can defer the capital gains tax and depreciation recapture for 30 years. It puts cash in the sellers hand that they can reinvest or use for retirement income.

Here's a good explanation...

https://www.biggerpockets.com/forums/51/topics/569293-can-i-use-100-bonus-depreciation-as-alternative-to-1031-exchange?highlight_post=3455810&page=1#p3455810

 This is more of an issue for the financial advisor or investment sponsor. The onus is on them to make sure that they are presenting investments to an accredited investor.

@Corey Kenney  Life Insurance isn't a tool to "collect big". Whether you use Term or Permanent insurance, its quite likely that you would spend more on premium than you would receive in death benefit. It's like Las Vegas with the odds slightly in favor of the house. 

Term life insurance is designed only to cover the risk of someone dying unexpectedly when they are young. As you get older, the cost becomes more cost-prohibitive. Life insurance companies sell term knowing that most people are going to outlive it. Premiums are pooled to cover the cost of the expected claims and still have money left over for profit. 

Permanent insurance is a transfer of risk over the insured's lifetime. Again, the insurance company is only taking the risk in the early years. The "Cash Value" of the policy is really just the policy owner saving up their own death benefit. As the cash accumulates, the risk is transferred away from the insurance company.

As a practical example, if you put a $1M policy on a 65 year old, the premium needs to be high enough that the cash value will accumulate to about $1M by the time that person reaches their life expectancy, assuming a worst case growth assumption on the savings component (i.e. "Guaranteed Rate").

The mechanics of permanent insurance are covered in this blog post...

https://www.biggerpockets.com/member-blogs/7595/77981-whole-life-vs-indexed-universal-life-life-insurance-101

 A 1031 exchange is great if you intend to reinvest in real estate. If you don't want to reinvest in real estate you can look at coupling an installment sale with a monetization loan. This is a way to defer the taxes and have money to reinvest. 

https://www.biggerpockets.com/forums/51/topics/569293-can-i-use-100-bonus-depreciation-as-alternative-to-1031-exchange?highlight_post=3455810&page=1#p3455810

Even if you intend to reinvest in real estate, the advantage is that you start off with a fresh depreciation schedule. 

@Andrew Bang

Lots of people do this. Its a way to literally put your money to work in two places at one time. If you already have the life insurance, that's great. If you are starting from scratch, its important that the policy be designed properly so as to minimize the death benefit (and fees and commissions) and maximize the cash value.

I write about the policy design aspects in this discussion...

https://www.biggerpockets.com/forums/519/topics/245380-paradigm-life-infinite-banking-whole-life-insurance?page=3

 I think it is important to point out that you do not "borrow from your insurance policy". You had it right the first time: the cash value can be used as collateral for a loan. The beauty of this is that you can literally put your money to work in two places at once. It never truly leaves the policy, so it still continues to earn interest or dividends. The borrowed money can be put to work in any investment you choose.

Cash value is liquid. Investors can have their savings in an account earning 5-7% instead of a checking account paying next to nothing. 

Using a cash value line of credit also enhances returns because it lowers the taxable income of an investment. i.e. if you borrow at 5% and your investment makes 10%, you are only paying tax on the 5% net gain, not the entire 10% gain.

All of the pros and cons of this approach have been debated here...

https://www.biggerpockets.com/forums/519/topics/245380-paradigm-life-infinite-banking-whole-life-insurance?page=3

People either get it or they don't. I think its a no brainer.