Funding Account for Real Estate Syndication Investments

[Duke Giordano]

Hey Guys,

For those who are an LP or GP in Real Estate Syndication deals and invest with Post-Tax cash account (not SDIRA etc.) I am curious about what type of funding account that you use.  I have outlined the considerations below:

1. Brokerage Account/High Interest Savings Account - this would seem the simplest option to use a Brokerage account or high interest savings account to make the transfer/witre.  The negative is you are getting a low interest level in the 1-2% range (cap One 360, Ally, or Fidelity MMA)

2. Infinite Banking Option/Bank on Yourself Whole life Policy - For those who are not aware of this type of account it is a whole life policy that you contribute to lets say 100K and then you have 75K cash value to use year one toward RE investments.  The cash position grows over time and you typically get a dividend interest in the 4-6% range.  When you invest in RE deals you borrow from the cash value, and still get your own interest on the borrowed amount but you have to pay yourself interest on what you borrowed (not sure what the Dividend/Borrowed delta is).  There is also a death benefit, and the typical break even point from fees is in the 5 year range.

Trying to figure out for those who specifically use post-tax accounts to invest in real estate what is the best use cash holding account for funding of the above two options, or that people use more commonly as the funding account?  Whats your thoughts on the consensus for a cash holding/funding account specifically for post-tax RE investments?

Thanks

Duke

[Thomas Rutkowski]

@Duke Giordano

It works. You just have to understand that it is a long term wealth building strategy. By putting your money to work in two places at one time, you are acheiving a higher overall growth rate on your assets. So even though your dollar turns into 85-cents of cash value, that 85-cents will eventually catch up and surpass where the dollar would have been if it had been invested.

The delta between the cash value growth rate and the borrowing rate helps the business case, but its the tax advantage that is more powerful. I would argue that you have a much better opportunity for interest rate arbitrage with an Indexed Universal Life than you do with a Whole Life. The growth rate on the cash value of an IUL will beat that of a similarly-designed whole life policy. Guarantees are meaningless in maximum over-funded policies. 

This is what it looks like when graphed:

Double Play = Putting money into life insurance and then leveraging the cash value to invest in "A".

Status Quo = Taking all of your money and investing it in "A"