Using Life Insurance and SDIRA for Real Estate Investing

[Ramon Cuevas]

Hello BP community,

I am exploring all of my options for investment capital and before I consider banks, private and hard money lenders, I wanted to get some ideas or suggestions from other investors who have either used the cash value of their life insurance policy or a SDIRA to grow your portfolio. I currently have a $500k term policy that can be converted into Universal Whole Life and also significant assets in a ROTH, Rollover IRA and 401k from my last job.

Also, does anybody know the guidelines for a non-recourse loan from the SDIRA?

[Allen Tyndall]

Ramon, the last reply here is a little off. Here's my take:

Yes a self directed IRA is a great bet if you have a substantial amount of capital there. I almost exclusively work with real estate folks with strategic financial planning and most people use either cash, IRA. or cash value from an insurance policy.

When structured properly (overfunding), a non-variable universal life or permanent life insurance policy can be your best friend. For one, billionaires buy life insurance, so the notion that you won't need it one day is simply not true. Anyone with a basic understanding of the tax code and probate would understand that. Second, for real estate investors, especially those who flip, need constant capital. There's risk with lots of cash. It's not creditor protected, there's no yield, and you likely will carry more than the FDIC caps at banks.

This is not a good strategy if the advisor does not structure the policy to build a lot of cash from day 1. Walk away if you don't see that. I'm happy to provide examples of what I mean.

Life insurance will provide the following:
1) permanent death benefit
2) protection from creditors
3) non-taxable yield of 5%+ (with the right company), which is the equivalent of 7.5-8% taxable.
4)leverage capability (arbitrage). If you're earning 5% on your cash value, get a collateral assignment to a bank and secure your cash value to a credit line. If you have 250k of cash, they'll extend you a credit line instantly. Likely, it will be at 3% or so, which means you use their money at 3% while your policy earns 5% and you'll go make 25% with the borrowed money on a flip.
5) guarantees to never lose money (there's reserve requirements to back your accumulated money)

Happy to explain this more privately... there's lots of details there. It's just math and logic. I can show you how they work together.

-Allen