Infinite banking can be a great tool for real estate investments, and can help enhance what real estate investors are already doing with their business.
Jordan Cole of Nowlin & Associates joins Brian to talk about the concept of infinite banking and using life insurance as funding for real estate investors. He shares some of the advantages and how it compares to other types of accounts, as well as how it helps you gain more living benefits over time.
Key Takeaways:
[4:24] Infinite banking is using high cash-value life insurance and designing it to where you can use it as if you’re your own bank. You use the life insurance cash value to fund your deals. This method can take on several forms for different types of real estate ventures, hence the name “infinite.”
[7:05] Jordan’s company already had a few clients using this system for real estate specifically, but in terms of infinite banking, it’s about minimizing the death benefits and enhancing cash and the living benefit. This system relocates the variable clients are trying to solve for — cash — and finding a place for that cash to reside.
[11:26] How can you use this for a real estate investment? Your money goes into a life insurance contract, and you take a loan again the life insurance policy. This utilizes the concept of other people’s money — leveraging the life insurance company’s money against their assets. After you close a deal, you take the money you borrowed plus whatever profit you made from the deal and put it back into the policy. This allows you to leverage the entire time and keeps your cash in the same place.
[15:50] Life insurance is also a tax advantage vehicle. The profit you make on a deal doesn’t necessarily have to go back into the policy, but if it doesn’t you may have to pay taxes on it. You’re never paying or recognizing a tax on the cash value of life insurance. Using the life insurance policy is different than an IRA because there are many different issues when you try to access the funds in an IRA — tax implications included.
[18:55] With every place you can park money, you have to look at how it taxes, how it earns, liquidity options, and determine what is the best place for your funds to reside. By putting your money into a life insurance policy, you can access the funds at any time and you really benefit from being able to leverage other people’s money.
[21:47] Unlike an IRA, with the infinite banking concept you get the profit and the income — you don’t have to wait until a certain age to access those funds for use.
[24:40] You can also use the infinite banking concept to act as a lender. You borrow against your life insurance policy, and then you lend that money out as if you are the hard-money lender. In this case, you are still earning interest on your money. This is something the banks are already doing, through bank-owned life insurance.
[28:34] When you sign a life insurance contract, it is bound to contract law and that is what guarantees your rate of return on the money in the policy. Life insurance companies invest in secure long-term bonds and other securities. You may incur a penalty or interest fee to put the money you borrowed back into the infinite banking account, but there’s a difference in the way the interest is calculated. You are earning on a larger amount at the set rate, and paying interest on a small amount; those numbers will always come out to the benefit of the client. Jordan shares a quick example of this.
[34:50] You pay interest to borrow the insurance company’s money, and that allows you to keep earning on your money. If you take the money out and do nothing with it, you may end up losing some net value. But if you’re using that money to get more interest, when you put it back there will be a greater net gain.
[36:40] At their conferences and meetings, they allow the opportunity to break down specific deals so you can see if it will work for your situation.
[37:40] One downside of this system happens if you never pay the money back. In this case, the interest could get out of control. Eventually, you could be paying more interest than you’ll be earning. This system is probably best for situations where you need short-term capital, so the money is not out for too long.
[40:05] The way these policies are structured, you will be better off overall, and you will also still have the death benefits. You’ll be able to pass on the asset you’ve accumulated in a tax-free status.
Representatives from Nowlin & Associates will be giving a presentation on Infinite Banking on September 19th. If you’re interested in learning if this could work for you, come by and talk with a representative!
Mentioned in This Episode:
ALAREIA Website
Meetings
Daily REIA Show
Facebook Page
Becoming Your Own Banker: Unlock the Infinite Banking Concept, R. Nelson Nash
Nowlin & Associates
Contact Jordan at: [email protected]
