Infinite Banking for RE Investors

Introduction

What is Infinite Banking? Well, simply put, it’s the process of creating and controlling the banking function in your own life. Why allow commercial banks to profit off of your money when you could perform the same function and reap all the rewards?

This article will focus on the three most important characteristics of Infinite Banking for real estate investors: Leverage, Liquidity, and Loss-proof.

Leverage

If you are a successful real estate investor, I can only assume you understand the power of leverage in scaling your business and growing your wealth. We use it every time we buy a new rental property or house to flip: we put the minimum required money down (your own cash or your investor’s cash) and then borrow from the bank for the rest. We are leveraging OPM (other people’s money) to increase the size and volume of the transactions we perform.

So let’s say you put your own cash into a deal. How many jobs is each dollar doing? One. You have moved your cash from an interest-bearing account (money market account, CD, etc) into a piece of real estate. You do this in the hopes of each dollar producing an ROI for you, and if you’re good at what you do, this usually works out. But what if those same dollars could each be doing TWO jobs for you at the same time and earning MULTIPLE ROI’s?

I do this by first putting those dollars into a vehicle that captures them permanently in an account that will earn guaranteed interest, and even potentially dividends, for the rest of my life. i.e, Uninterrrupted compound growth for as long as I live. Once those dollars are in this vehicle, I can then leverage them to borrow OPM for my real estate purchases.

So what’s the vehicle I use for this? Specially-designed, dividend-paying cash value whole life insurance contracts. This ain’t your grandpa’s whole life insurance. These policies are designed specifically with the intent to accelerate the growth of your cash value inside the policy. And once that cash value appears, it is there to stay, earning uninterrupted compound growth for as long as you live. Guaranteed.

The best way to explain how it works is----it’s kinda like a HELOC.

As a real estate investor, you’re probably familiar with home equity lines of credit (HELOCs). Maybe you have even used one or have one available to you. Good. HELOCs are a great tool, so long as they are used smartly. Here's how HELOCs work:

1. Make your monthly mortgage payment
2. A portion of every payment goes towards principal and creates equity
3. Once enough equity is built up, the bank may offer you access to it through a HELOC
4. Use your line of credit to purchase real estate

Now, Infinite Banking has a few distinct advantages over a HELOC:

1. You own it and control it
2. It is guaranteed to increase
3. There is no pay-back schedule---you create one that works for you

Do you own and control the terms of a HELOC? No, the bank does.?

Is the value of your property securing the HELOC guaranteed to increase? Nope.

Do you get to create your own payback schedule for the HELOC? Nope, you’ll likely have to make a minimum monthly payment and have it all paid off at the end of the term.

I flipped my first house in 2016, which is also the first time I actually put my cash value inside of my policy to work in two places at once. I found a great deal (or so I thought) in a neighborhood not far from where I lived. I found a contractor on Craigslist (big mistake) and he quoted me a rehab job that sounded reasonable. I found a great hard money lender who would loan 70% LTV and we were off to the races. I figured we’d be in and out in 2 months (stop laughing)!

At that time I had built about $100,000 of cash value inside of my insurance policies (I had 5 different policies at the time...one for each member of the family). What that means is that I now had $100,000 that was available to be leveraged. In other words, every dollar of cash value that I built became an equivalent dollar in a line of credit that I could borrow from the insurance company anytime for anything, no questions asked. I owned the line of credit, and I got to control it. So I took a $20,000 loan from my line of credit and then turned around and loaned it to my LLC and charged my business 10% (yep, you can do that). Then I paid my contractor to get started...what could go wrong with paying the contractor before he did any work, right?

Two months later I had a partly framed basement. That was it. So I finally fired the contractor and threatened to sue him if I didn’t get some of my money back. Fun times. Then I had to find a new contractor who could finish the job within the budget I had established. Easy peasy...

The first loan I took was $20,000, which meant I now had $80,000 in my line of credit remaining that I could borrow. All in all, I took about $75,000 in loans to fund the rehab. And 9 long, stressful months from when I purchased the property I finally sold it---for a total loss of $11,000.

But guess what I didn’t have to do during those 9 months? Make any loan repayments to the insurance company. Nobody was knocking on my door, calling my phone, or sending me letters in the mail saying they wanted their money back. The loan repayment schedule was entirely at my discretion. So I waited until I sold the house and the money showed back up in my pocket before I paid it all back.

And as soon as I paid back the loan, it was immediately available to use again for the next flip. And yes, I did continue to flip houses and never lost money on another one. Education is expensive, but worth it.

And the best part of this all was that the entire time I had those loans out, my original $100,000 was still safely stored inside my policies earning interest and dividends on the entire amount!

As we all know, good deals don’t stick around for very long. The rule of thumb is that whoever has the cash gets the deal. Liquidity is extremely important when deciding on where to store your cash in between deals...

Liquidity

You can have all the equity in the world, have a networth of millions of dollars on paper, but if you can’t access that equity, you can’t use it. Plain and simple. As real estate investors, we need our capital to be LIQUID. How many people have lost deals because they couldn’t come up with the cash quicker than the next person?

Your cash value inside of your life insurance policies creates a line of credit with the insurance company of an equivalent amount. And it’s liquid. When I need a loan, I get online, click a few buttons, and 12-72 hours later the cash appears into my checking account. I always give myself a few days lead time just to be sure, but I usually have the money in my account within 1-3 days.

There is no loan paperwork to fill out, no credit checks, no employment history needed, no nothing. I just say “I want $50,000” and so long as I have at least that much in available cash value inside my policy, I get it.

Every dollar I pay back towards the principal of my loan immediately becomes another dollar I can borrow again. Just like a line of credit.

And whether I have outstanding loans or not, my entire cash value is earning contractually guaranteed growth that I get to access tax-free for my entire lifetime. Now, technically speaking, cash value life insurance growth is tax-deferred. However, you can access the growth tax-free by utilizing cash value loans as described above. Just like any loan you would get from a bank, insurance loans are not taxable.?

Not only are you enjoying guaranteed growth, but because it’s life insurance, you are also building a guaranteed death benefit. Many people misunderstand the death benefit portion in a cash value whole life insurance policy. The death benefit rises every single year that you make your premium payment. That’s right, the income-tax free death payment that is made to your beneficiaries after you retire from this Earth continues to rise every year that you are alive. And your annual premium remains the same and usually even decreases over time. In fact, there are very simple strategies you can use to eliminate paying your annual premium out of pocket once the policy has been in place for a number of years. But that’s beyond the scope of this booklet…

To summarize:

• Your cash value creates a line of credit for you that is liquid and accessible
• Your annual premium payment does not increase, and may even decrease over time
• Your policy can be self-sustaining (i.e., it can pay it’s own premiums) after a number of years
• The death benefit to be paid to your beneficiaries grows every single year. In other words, the longer you live, the more money is paid out to your beneficiaries when you die. Guaranteed. Income-tax free.

Loss-Proof

What good is leverage and liquidity if you’re still having to worry about volatility and the risk of losing your capital to the whims of the market? And how much capital are you losing to inflation when it’s sitting in your bank account earning .1% while inflation is rising at 3% or more?

Your money has to reside somewhere. That’s just a fact. And there are no shortage of places where it can reside. So why not discover the best place for your money to reside and then put it there?

A specially designed life insurance contract is the only place I know of where I can put my money and have all of the following guarantees:

• It will never decrease
• It is contractually guaranteed to increase
• I can leave my capital there to earn uninterrupted compound growth while I leverage each dollar to borrow another dollar to put to work in my real estate deals
• Every dollar is given multiple jobs
• I’m offered financial protection from death and creditors

Ok, let’s talk about the protection factor. Because it is, after-all, life insurance that we are utilizing here. Not only is your capital loss-proof when it becomes cash value inside of your life insurance contract...it is also creditor-proof (in most states) and death-proof.

Creditor proof: In most states, the cash value inside of your life insurance contract is protected from people trying to sue you and even from bankruptcy! This might be just one reason why so many wealthy families in North America put huge sums of money towards these contracts. And if you’re working in real estate long enough, the question isn’t “will you be sued”, it’s “when will you be sued”.?

Death proof: When you “retire” from this Earth, whether it’s tomorrow or many decades from now, your beneficiaries (family, business partner, charity, private lenders, whomever you choose) could receive an income-tax free payout that is multiple times larger than the amount of capital you ever placed into the contract. Will your savings account do that? How about your CD or mutual fund?

Many investors, especially syndicators, are also able to provide an extra level of comfort for their private money lenders through the use of collateral assignments of part of their death benefit. If a lender has ever asked you, “what happens to my money if you get hit by a bus tomorrow?”, being able to respond to them that you have enough life insurance in place to cover their loan could be very appealing to them.

Summary

We’ve covered a lot of ground in 15 minutes. If this concept appeals to you, your next question is probably “how do I implement this?”

• Talk to someone who knows exactly what they are doing!?You can reach out to me directly and my team can walk you through the process.
• Educate yourself.?I recommend reading the book The Case for IBC by Carlos Lara and Dr. Robert Murphy. 124 pages. I’m happy to direct you to several podcasts that are good resources as well.

LEVERAGE. LIQUID. LOSS-PROOF.

FAQs

What if I can't be insured?

Life insurance is the only financial tool out there I am aware of that you need to physically qualify for. And the truth is that some people simply can’t qualify for any number of reasons (disease, chronic illness, risky lifestyle behaviors, poor driving record, etc). If that’s you, no need to worry: you can still create your own Privatized Bank by owning an insurance policy on someone else. This is what’s called an “insurable interest.” Do you have a spouse and/or children? How about a business partner? Those are all insurable interests and you have the ability to own and control a policy on them.

Can I use life insurance to protect my business partnership?

Do you have a business partner? Do you have a buy/sell arrangement in place in case one of you dies? How will your partner’s ownership be distributed? A buy/sell arrangement using an insurance policy will protect your interest in your business while at the same time compensating your partner’s family/beneficiaries if tragedy strikes your partner, and vice versa.

I have a large sum sitting in a bank account...how can I get all of this into a specially designed life insurance contract without having to put that same amount in every year?

One of my favorite strategies is adding a “lump sum” to a client’s first premium. Let’s say you have $100,000 sitting in a savings account right now waiting to be used for your next real estate opportunity. You only want to commit to funding your "Bank" with $20,000 per year. What can you do with the other $80,000? You can add a one-time lump sum in the first year to your premium, which will dramatically increase the immediate amount of cash value against which you can borrow. It will also add a turbo-charger to your cash value growth over the years of your policy. This is a great strategy if you want to start putting as much possible cash to work in two places at once as soon as possible.

What are the downsides?

I’ll shoot you straight: the downside is that you won’t have access to 100% of the money you put into your policy for a number of years. Remember, you are paying for a death benefit that is multiple times larger than your premium, and that costs money. Especially since that death benefit is guaranteed to payout upon your death, however long you live to be. You can expect a few years before you see every dollar of your premium payment showing up as one or more dollars of cash value. So if you don’t have a long-term perspective on growing generational wealth, and you are looking for a short-term arbitration play, this isn’t for you.

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