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How To Finance REAL ESTATE w/ Whole Life Insurance | IBC Global, Inc - YouTube
Channel: Insurance Business Concepts (IBC) Global
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We are going to touch on a popular concept聽
which involves using a dividend paying whole聽聽
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life insurance policy a high cash value life聽
insurance policy to finance real estate a lot of聽聽
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real estate investors are attracted to this idea聽
some hear about it, don't move forward, some see it聽聽
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move forward right away so conceptually we're聽
going to touch on exactly how this works. We'll聽聽
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begin with the whole life insurance piece so with聽a whole life policy I should say聽聽
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this 100% has to do with聽
the cash value you will see聽聽
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some tied to the death benefit but when it聽
comes to actually purchasing real estate if聽聽
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that's my goal the cash value has everything to聽
do with it this is the key here so when it comes聽聽
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to the cash value a couple bullet points here聽
it is a safe liquid tax-free area to position聽聽
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money tax-free provided I don't mess the policy聽
up and there's we've got more content on that聽聽
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elsewhere but let's touch on these two pieces safe聽
and guarantees so the money in itself within the聽聽
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cash value component of a life insurance policy聽
is not tied to or invested in the stock market聽聽
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I have a guaranteed floor, a guaranteed聽
minimum interest rate of 4%
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and then typically the company will pay dividend聽
on top of that and with different companies I'll聽聽
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see dividends range from about five to six percent聽
that's for 2020. Liquidity money is very liquid聽聽
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once it's inside of a cash value life insurance聽
policy and the tax benefits well we've got a聽聽
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lot more content on that here's the piece that聽
really makes it all work this is what attracts聽聽
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people who are involved in real estate because聽
it resonates with a real estate investor聽聽
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no lost opportunity cost in the sense that聽
once a dollar passes through the cash value聽聽
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of a life insurance policy regardless聽
if I just let that dollar sit and grow聽聽
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or if I borrow against it if I pull it out聽
I continue to yield dividends and interest聽聽
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the guaranteed rate and dividends as if all of the聽
money were still in the policy in the first place聽聽
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a lot like a piece of property if聽
I'm appreciating at five percent聽聽
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whatever that real estate's appreciating at if聽
I borrow against the equity I still receive the聽聽
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appreciation on the entire appraisal value not聽
just remaining equity you'll find that it is very聽聽
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very similar with the whole life insurance policy聽
so when it comes to real estate cash flow there's聽聽
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different ways to invest in real estate maybe聽
it's buy and hold, sell it down the road but聽聽
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typically cash flow is what works quite nicely聽
with a whole life insurance policy meaning I'm聽聽
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purchasing properties that are producing cash flow聽
flowing back to me cash flow's king at the end of聽聽
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the day too. So the property let's say I'm earning聽
somewhere between six and 12 percent broad range聽聽
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but it really depends where I'm investing and how聽
much capital I have to work with depending on what聽聽
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type of deal I can get now to purchase it with聽
a life insurance policy let's take a look here聽聽
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so in action how this would be used how this would聽
work if i have a life insurance policy and let's聽聽
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pretend how much capital should we look at here a聽
bigger piece of property okay let's say we've got聽聽
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five hundred thousand dollars in cash value now聽
the thing is you do have to capitalize a policy
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first meaning to have 500 grand I would have had聽
to have paid that in or paid in less than that and聽聽
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then the appreciation obviously grew to 500k but I
can't just put a dollar in and instantly have 500k聽聽
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so if I've got 500k in cash value I want to聽
buy a piece of property let's say this costs
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350,000. So I want to purchase this 350k聽
property I can buy it in cash finance to the bank聽聽
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or finance to my policy so financing through a聽
life insurance policy here's how this would work聽聽
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so I'm going to loan out 350k from my policy聽
so first things first remaining cash value
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would be 150.
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and the reason for that is聽
because I take a policy loan
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of 350 thousand dollars to purchase the property
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okay so at 500k cash value I've borrowed out聽
350 so I've got 150 remaining in equity okay聽聽
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now what's going to happen here is I've got that聽
350 loan outstanding so there is a cost to borrow聽聽
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just like there'd be a cost to borrow to take聽
a line of credit out or mortgage from a lender聽聽
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that's going to depend on the insurance company聽
typically you'll see them range from about聽聽
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five to six percent now that five percent
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on the loan we'll go to the insurance company
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so if I pause there this concept would make zero聽
sense because I'm literally borrowing and paying聽聽
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interest on my own money however just like a piece聽
of property that I'm earning the appreciation on聽聽
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the entire appraisal value here's what happens聽
if the company is paying me I'm just going to use聽聽
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some simple numbers here five percent on 500k say聽
it's four or five percent whatever I'm going to聽聽
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continue to receive that even though I pulled聽
350 out there's no lost opportunity cost now聽聽
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how the insurance company does聽
this time back to the death benefit聽聽
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where we said it has some importance with this聽
concept is if I borrow at 350 let's say day one聽聽
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my death benefit was a million bucks I pull聽
out 350 the insurance company is going to聽聽
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collateralize my death benefit so if I die聽
with a loan outstanding they're on the hook for聽聽
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350k less they're okay with that remember聽
their first and foremost obligation聽聽
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is to do what payout life insurance claims and聽
if I pay it back it's all fully restored but what聽聽
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we've got going on here is I am still compounding聽
that full 500 while I'm paying interest only聽聽
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on the 350 quick side note loan聽
interest to cruise at annual simple
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interest so if I pay it each year it will聽
not compound on itself which is valuable聽聽
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so literally what guys will do here is borrow call聽
it 350 purchase the property if that is producing聽聽
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eight percent or whatever it is now they can聽
take that eight percent and use it to repay聽聽
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the policy loan the thing is this is constantly聽
at work for them again no lost opportunity cost聽聽
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what's interesting is if聽
you've ever seen any of our videos聽聽
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where we looked at a policy side by side聽
where I pay money in let it sit and grow聽聽
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compared to borrowing and then repaying what聽
you'll find is once a loan is paid back my cash聽聽
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value is fully restored to what it would have been聽
as if I had never touched it in the first place聽聽
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that compounding continues there's聽
no lost opportunity cost so really聽聽
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using a policy for real estate it allows me to聽
call it double dip on my money where i keep my聽聽
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primary bucket of cash at work for me and then聽
at the same time invest in real estate where I
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get a return over there keep the compounding going聽
forward good stuff and as always hope this helps聽聽
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Hey guys Steve Parisi here if you enjoyed the聽
content you just saw please subscribe like and聽聽
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hit the notification bell for future videos if聽
you'd like more information or to see some custom聽聽
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policies for yourself feel free to call or email聽
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