When utilizing a properly constructed cash value whole life insurance policy (key words properly constructed) a real estate investor can leverage their dollar twice, meaning in two different places at once. When you borrow against your cash value at that point your cash value is used as collateral and continues to earn interest as if you never touch it. Simply because You Didn’t.
(Example)
If you had a cash value of $50K and needed to borrow $30K for a rehab, the 30K isn’t deducted from your 50K, your 50K continues to earn interest. You use the 30K for rehab according to your exit plan whether holding or selling. When you refi or sell you pay yourself back and rinse and repeat.
I must reiterate that a cash value whole insurance policy must be constructed properly to maximize the cash value acceleration. When it comes to utilizing the cash value, most Real Estate Investors ask me how fast it will be accessible, which is a great question. I normally answer that with that’s up to you, every situation is different. One investor may have a certain amount of money socked away in a place where it’s just sitting dormant and can dump that cash into their Infinite Bank and have access to 85% of that in less than 30 days with some companies (not all). That’s why you need to be mindful of who you allow to help you. Because if that person isn’t utilizing his own banking system, then how can he assist you with yours. Then another investor may not have a chunk of money to start their own bank, which is totally fine. That cash value would have to build, and a properly constructed illustration would show what would be available come year end.
The problem with Infinite Banking (your own Bank) and the industry is the agent’s commission is tied to the death benefit. When it comes to constructing your own bank if the agent doesn’t have your best interest in hand, then the death benefit would be increased, and your cash acceleration would be affected. Rule in thumb your 1st year cash value should range from 80 to 85 % of the 1st year’s premium. (Very important)
The most important thing a investor needs to remember is that when it comes to building your own bank you can’t just dump chunks and chunks of money into this vehicle due to something called a MEC which stands for Modified Endowment Contract. To keep things simple IRS.
This is Life Insurance first but if structured properly and used accordingly your Infinite Bank would never become a MEC.
Infinite Banking and Real Estate Investing simply works. It is a way to leverage your money twice by leveraging the cash value of your life insurance policy. However, to do it right, the policy needs to be designed properly. If not, it will take too long for the cash value to break even. When you look at the break even, you need to be looking at what you could have done with the money had you invested directly in real estate. You will know the policy is designed properly when the cash value to premium ratio is approximately 80 to 85% come year end.
Keep in mind that in order to open a Infinite Bank you have to be approved, which could entail a mini med and a check of your medical back ground.
See what a properly constructed policy looks like for you.
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