Using Life Insurance Cash Value while Investing Long Term

[Daniel Dietz]

I am wondering how/if to best use the Cash Value of my Universal Life Policy to assist in getting into RE Investing.

Although my net worth is fairly high, it is mostly tied up in ROTHs and my personal residence, which I would prefer not to leverage. The policy in question is holding about 150K that was gifted to my wife as her parents were doing estate planning. Her mother is still alive, but elderly and handicapped, therefore, she would prefer not to 'use up' (lower the net value) of the funds in case her mother needs assistence back from us.

The policy is with a A+++ company, I have had it for 20+ years. It is currently paying 5.5% AFTER insurance cost, and carries 500K on myself. I can borrow from it and get the funds in 48 hours. The 'stated'rate to borrow is 8%, but the policy still pays the 5.5 even when the money is borrowed out, meaning a 'NET' rate of 2.5%. Although, this spread can change over time, so I am not thinking of using it long term for RE.

I am leaning towards buy and hold for rentals as my dive into RE Investing. I have a great mentor, good buys, etc... The properties I have looked at are somewhat like this; REOs assessed at 100K, can get for maybe 40K, 20K rehab, good cash flows. I would like to use the Insurance funds to either do a down payment, or possibly buy for cash, and then refinance at as high of a leveraged ratio as possible.

Would I be better off buying them for cash, doing the work, and then refi for 80% of the ARV, or doing 20% down on them and then refi? I guess I am looking for what is easiest to refi more than the interest rate differences.

Hope that make sense.

Dan