All Forum Posts by: Derek M.

I often say about 70% of LI Agents don't know how to set these up, and especially don't know how to use them. They may know and offer "whole life insurance" but that's like saying "I can set up an IRA". Okay, and? Many can create the bucket, but most don't know how to fill it - what matters is how it's made... just like "having an IRA" gives no clue as to what it's invested in. Another 20% or so of agents only set up marginally effective policies that only look good because the 70% look so bad. Very few give everything they got and avoid making big $$. Sadly, the worse the policy is for the client the more the agent makes. The better the policy is for the client the less the agent makes. Now, put that formula out in the wild and you can imagine where most agents line up... unfortunately.

Anyone reading this must do their homework very thoroughly.

Wow, it's been a few years since I last replied.  Now I have 6 policies... best thing I ever did to supplement my investing and just my family life in general.  Not losing your spot on the compound curve, or put another way, letting your money work in 2 places at once is a central theme with this vehicle.  So many other perks that come with it.  The sad part is most agents don't know (or aren't willing) to do these right. 

I just got 119K worth in the first batch of a few.  @Dennis M.   There is a way to use a 3rd party who takes your credit payment(s), and then wires funds to the title company...  yeah, you can't swipe a card at title :) 

@Richard M.  First, I'm NOT an insurance agent or anything so my perspective is from having a couple policies geared toward wealth building strategies - I don't claim to have all the answers so I'll leave it to the pros for the more technical stuff.  

In my first policy, my MEC is around $20,000, but my premium and paid up additions rider equal $13,000.  I just hit my 1-yr anniversary, and as you have seen there are a lot of nuances to these plans.  When you first get into this way of thinking they are just new idea's to many (they were to me) and it requires some learning (not a bad thing at all).  So I didn't know what that 7K difference meant entirely.  When I got my second plan a few months ago it was with Paradigm and they did more of the aggressive paid up additions funding.  My first plan was still an infinite banking strategy, but not as aggressive at Paradigm's.  In my second plan my premium and my paid up additions equaled right at the MEC limit (6K).  So learning more how all this worked with the second plan I asked about the MEC of my first and the 7K disparity.  There was also a relationship with the length of years the premiums are paid and the MEC limit to premium/paid up additions rider ratio, so I'm a bit fuzzy on that part, but nonetheless he ran some numbers and it definitely wasn't worth me cashing in the first plan to change it with a new one.  Rather he called the insurance company to verify that I can actually get underwriting to fund that 7K difference up to the MEC (which was cool because he wasn't even my agent on the first plan, he was just trying to figure out the best scenario for me).  The insurance company said I could fund the 7K annually but I had to wait until my first anniversary to apply for the underwriting, so I'm doing that process now.  

To your point, I think you are correct that the better plans will fund everything they can right off the bat. The interest "game" isn't really needed or necessary since you basically capped out your additions rider from the get go. I'll let @Thomas Rutkowski chime in on those technical details.  The benefit is that you are still saving interest or receiving benefits, but those extra monies will simply stay in your taxable bank account since your non-tax policy is maxed out.  You're still winning.  

I ran some cool numbers on using my plan to speed up my investment strategies, and even assuming that the excess profit is taxable, with all the tools WL creates it blows the alternatives away, IMO.    

I have two policies so far and coming up to end of year one. In one account I have around 6K in cash value (13K annual payment). The other I have around 4,500 in CV (6K annual payment). On the first the 7-pay is around 20K, and the second the 7-pay is 6K, so for the first one I can get a little more underwriting and under the same policy stash another 7K – which I’m in the process of doing now. After 1 year or so that’s $17,500 in cash, tax free, protected, and around 784K in death benefits out the gate (that’s not counting the new underwriting for the additional 7K that I’m doing right now). I consider this my “home base” of funds. Yes, I’ll still have an emergency account in a separate bank in the early years, but this WL thing is all part of a larger strategy – which is to fund my own life, have money access TODAY, protect this money, and leave legacy money to future generations.

So, the true number is that I’m paying 26k of my own cash, to get 17,500 in immediate cash value for year one… that looks horrible at first glance to anyone with or without a calculator… but this will be the absolutely worst year from the first glance view.  Fast forward 15 years and here are the numbers, assuming I do the same as I’m doing now and just let the money sit doing nothing (estimating and average return of only 5% on the 7K annual portion of the CV by the way… could be more aggressively compounded):

I will have contributed $390,000 (end of 15 yrs)

My Cash Value will be $559,000 (end of 15 yrs)

My death benefit will be 1,432,000 (this doesn’t include any underwriting for the 7K extra each year – not sure how that will affect the death benefit)

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Fast forward to 30 years, and assuming I only have these two policies and no others and left everything alone, my cash value will be $1,800,000… and my death benefit would be 2,415,825 (again, not including additional kickers for the 7K). All that 1.8mm money can be taken out tax free in loans, while STILL making money on it (there is always an arbitrage the policy holder makes as the loan is being paid back and the cash value still making interest and dividends. Even an IRA distribution after 59.5 years is gone forever once out of the account.)

But here's the real kicker, I'm a full time real estate investor. My goal is to take cash value loans out as early and often as possible and self-fund some bread and butter rehab projects that I'm already doing… So, I'll in theory repay the loan to my policy, however, the proceeds from the rehabs are taxable, but they would be anyway if I was using cash sitting around my .01% bank account. The other thing I'll do is buy properties as my cash value gets bigger and immediately sell them owner finance to get a down payment, and create money out of thin air on notes to pay my loans down and give me cash flow TODAY. And then I have rental strategies using portions of my cash value if I want, or I can lend to other investors and make 20% all day long (I do that already with some of my SD IRA money – just lend at 12% and 2 points, 4 times over in a year – or lend on equity splits and make more, etc)… so many options. This is above and beyond the mainstream strategies of using this as my bank to buy my cars or other financed items to save on interest - real estate vehicles to me has a much great velocity of return.

I look at these policies as a holding tank that is protected, grows at reasonable rates, has guaranteed growth, and I can USE MY MONEY TODAY. I also have a SD Roth that I’m getting great returns on (limited to 5,500 contributions at year), and I have a Solo 401K Roth, but other than regulated 401K loans, I can’t use this money TODAY. If the downfall is that on paper it looks like I “lose a little bit of money” as I fund these policies for a few early years, then that is a total cost of doing business (creating my own bank essentially for some up-front investment – sign me up!). Oh, and by the way, I get life insurance death benefits as a byproduct of this tool. And if the death benefit amounts aren’t enough at some point, buy some term. I bought my wife a term policy in case she was to pass, but it can/will be converted to WL for her later down the road.

Because I can't technically have a flip business in my IRA or 401K (you can do x amount before the IRS calls you on it, but no one knows that number, maybe 1 maybe 5 – all to risk getting your whole retirement account becoming taxable), that means that turning my cash value into huge chunks of money is far easier and more reasonable using a WL plan as the engine. Not to mention the 10's of thousands saved from using my current lenders money (and I can still use their money as my deal flow increases, or I simply use mine to supplement or gap my deals). I'll need to do the math after 2 or 3 years of doing this.

If people don't have the funds to pay for the premiums, then I can understand the restraint, but in many ways, these are more powerful than IRA and 401K accounts – and people can use much smaller premium amounts to start that what I posted. Some people contribute 100's of thousands in premiums - total flexibility. The only thing that comes close to this holistic strategy with WL, in my opinion, is an investor who knows how to use and really work self-directed accounts… but even those aren't helping with money to use TODAY, and they have their own limitations. I use all three strategies – SD IRA, Solo 401k, and 770 accounts (WL). I have nothing to do with the insurance industry, I'm just a customer who has done a ton or research and see's the opportunity. And the other add-on to the above numbers I provided is that I will pepper more of these policies over the years…

@Thomas Rutkowski - interested on your thoughts...  I'd be curious to see your illustrations vs what I have so far.

I have a WL policy that I started about 5 months ago...  I have big plans for it.  I'm gonna work that money big time.  The life insurance portion is a benefit for my family (along with the tax shelter), but the money that gets capitalized is tax free, guaranteed, and I have full flexibility to use it as I want. The insurance portion is just icing on the cake and a perk for the family after I pass.  I'm a real estate investor, so that will be the biggest areas I'll use it in.  There are fee's to the product, but it's a long term strategy... the break even point is usually after a few years of capitalization and then the momentum really starts to go... all with cash you can use today for anything you want.  So for me after much research and talking with various agents, it makes sense.  

@John Cantu  Hi John,  

Figured I'd jump in here real quick.  I do a lot of deal in the Houston market and there are certainly things to know (this is all pertaining to Texas specifically).  For instance, some wholesalers couldn't really tell you what equitable interest is, what their contract accomplishes, or how the legal spectrum works regarding the whole process.  One reason why some wholesalers get in trouble is because they are marketing a house for sale while not being licensed.  That's a big no-no.  They aren't selling a house, they are selling their equitable interest (they may say that or kinda know it in their head, but they can't articulate that in any of their marketing or conversations).  In fact (I don't have the code in front of me), look through the TREC rules and it specifically states you can sell your interest in a deal if you have equitable interest.  In Texas you actually have equitable title.  (Fun Fact: Equitable Title means you basically own the house once you sign the contract, however the deed transfers at the closing.)  So what does all this mean?  Well, ever heard of daisy chain wholesalers?  (Wholesalers who market other wholesaler deals) What are they marketing exactly, and under what authority are they doing it?  First, most are sending out email blasts, CL posts, FB posts, etc, saying House on such and such street selling for 100K, or asking 100K.  What is a reasonable person going to believe?  Either that that wholesaler is the owner of the house or a licensed agent.  If questioned, they don't even have a legal interest in the property.  What grounds do they have do defend themselves?  

To do it correctly involves a few things. First, run your business correctly... don't try to screw over a seller (I see that so many deals get thrown around that it devalues the human element of there really being a seller who is really depending on you to bring 100K cash to the closing table). You aren't providing a service, you are fulfilling a contractual obligation to close on a real estate transaction, unless there are issues that allow you to get out of the contract (inspection issues, etc). Second, have equitable title (be in contract directly with the seller, or somewhere in the chain). Does a JV count? I wouldn't think so, not in terms of equitable interest. Third, have a good contract (yes, it's smooth not to have earnest money, but does that open you up for all damages under law, as opposed to damages equaling your earnest money deposit?). Fourth, have some intent to buy the house or houses in general. Did you contract with the intent to assign? Well, then maybe you have some partners who work with you and buy your houses. Or maybe you can say, yes, last year my company bought 7 properties, however we also assign some that end up not meeting our business model. Sometimes we buy them and other times after we do our due diligence we decide to sell our interest to another investor, etc. Fifth, do you default on a lot of contracts? Are you arbitrarily locking up deals and moving 20% of them? Well, that means you're screwing 80%. Or are you running your business right and working your numbers so there are several exists.

I've done a lot of assignments and I also buy a lot of houses for short term flips and long term holdings.  I've thought a lot about this issue because, as you've stated, it's come up in our market a lot over the past year.  I'm not an attorney, and all of what I said is merely my opinion from my experiences, but the bottom line is to know the nuance pieces of the law.  You can't sell real estate without a license, period.  However, you can sell your contract.  But you can't market your contract like you're selling real estate, or you won't pass the sniff test.  I've developed specific processes and procedures over the past month to handle all this.

Oh, as a bonus, my favorite piece of info for agents who wholesale (I'm not an agent by the way) is that TREC also states they must show a CMA or get a BPO and provide it to the seller if they want to work the deal off market. Mr. Seller, once you repair your house it will be worth around 120K based off this printed off analysis that I'm really good at because I'm a trained Real Estate Agent, but actually, that information aside I'm willing to give you 32K cash for your house and can close in 3 weeks. How many agents do that??? lol, I bet very very very few.

Just my personal advice, but I hope that helps a bit.    

Not to bring a dead thread back to life, but I'm on board with whole life dividend paying life insurance.  It's a topic fresh in my head as I went through many different options.  I actually hammered this down last year and started a policy a few months back.  It's not a get rich quick thing nor will it give you much cash in the early years, but after several years the sails seem to blow off of it.  It's your own banking system and it needs a few years of capitalization.  Even with a quick few thousand available that I have right now I can take small loans to beef up my rehabs, or use them as float money for rehab draws, etc.  I will pay back, plus add % to my payback, plus the money that is in my account gets it's regular interest plus dividends (dividends aren't guaranteed, but they have basically always been paid).  *You don't actually take your own money out, you get loans from the insurance company directly and your cash value is the collateral.  I'm using a dividend paying mutual insurance company, and there are  definitely various products out there, some linked to the stock market.  Mine is not.  

The other factor for me was the legacy effect. The death benefit is great and increases each year. In 30 yr's if I don't do anything else than the bare minimum, I'll have a significant chunk of cash, and a much more significant death benefit which will go to my family and they can continue it - all tax free and very private. Using certain real estate and other strategies with the cash value (take it out and lend it, lend to your self and pay yourself back what you'd pay a lender, buy cars or items you would normally get financing on, have an emergency fund, etc etc), the velocity of the practically 5% a year you'll get if you do absolutely nothing in it will greatly increase its velocity. And plus I still use SD IRA's, SD 401K's and all that.

Since the last 5 yrs of this thread, has anyone started a whole life policy and used it with real estate, etc.?

Has anyone in here ever used, researched, or know anything about FreedomFirst401K.com with Dave Cole?  If so, how does it rate to the others mentioned on this thread?  I don't see the fee's posted online... anyone know their fee structure as well?  I'm planning on talking with them in the next couple days.

Thanks!

Thanks guys, I'll send a PM.