All Forum Posts by: Aaron Porter

 The one thing that I want to put out here is that not one of the "Infinite Banking" people are saying to not do your strategy/or strategies.  They are saying if you would combine the strategies you would be able to create extra leverage and arbitrage which would allow you to go further than you could on your own.  

I wasn't saying we should talk merits of life insurance, but if you want to, the infinite banking strategy is life insurance.  It has slow growth because it is guaranteed growth, it has slow growth because it comes with principal protection, yes you loose liquidity in the 1st years but you still have the majority of your liquidity plus you get to keep investing in the other investments you want and you get the added benefit of the life insurance plans.  Insurance is a risk averse growth plan, that allows you to take your liquidity which is principal protected and invest it other areas that have a higher risk.  

Are there other life insurance plans that may be better for you?  Maybe.  Here is one last question... I understand that from your perspective you have growth your net worth, your annual passive income, and your asset holdings to a level that is most sufficient for your family or heirs when you pass on.  That is amazing, and I seriously congratulate you! the 99% of the population will never reach that level. I do have a question and you don't need to answer it.  But why do you think life insurance should be a reliance?  Why not instead switch your viewpoint to- for a $100,000 which you can have back close to $90K on day 1 to invest in other places.  Why not let that $100K give your beneficiaries 200K on day 1, and that 200K in 20 years is going to be 285K, in 30 years it will be $365K and so on and so on.  All of that for $100K, that did lose liquidity, but still allowed you to have access to it and that cash value continued to grow, and you could still leverage that money any time you want forever.  That money  goes to your heirs for you doing nothing but spending the 100K but you were able to use most of to invest in other places to grow your net worth even faster.

Lets face it real estate while a "safe" play still carries huge risks, market turn downs, maintenance, bad tenants, area downgrades, tenant turnover, and for long term rentals the cash flow is really not that great all things considered.  Long term rental investors are counting on property appreciation and keeping their monthly costs as low as possible.

This is turning into an extremely amusing fight of lets break down some hypothetical numbers and argue over who is right or who is wrong.  

Life insurance is a contract between the client and the insurance company.  The Carrier is guaranteeing you certain things will happen if you pay into a policy.  (depending on policy structure the outcomes vary greatly) 

Life insurance is not an investment and doesn't and shouldn't take the place of your other investments.  Cash Value Life Insurance is an augmented savings plan that happens to have an Internal Rate of Return.  That said, if you only earn an extra 1% (until the day you die) on the money that you are using to invest, is that not worth it?  All you did was create a pitstop for your investment money, yes it does cost some of that money in the 1st 5-7 years.  But it also allows you excess leverage that you otherwise would not have access to.  

But don't forget there are other things that life insurance does.  Like a death benefit. That benefit is going to go to your beneficiaries when you die.  There are 2 things in the world that are guaranteed right now, death and taxes.  So if you could capitalize on the amount of money that you are able to leave your heirs tax free is that worth something to you?  Life insurance also has protections for divorce, bankruptcy, and taxes while you are alive, and there are living benefits if you are to become disabled, or get cancer, or lose a limb.  

Yes you can get Term insurance for super cheap.  But term insurance is only cheap when you are young.  For a 60 year old, 60 isn't that old anymore, I have friends who are over 60 and can out hike, mountain bike and climb me and I am 34.  So 60, in fantastic health to get $1,000,000 in death benefit with some living benefits you are going to spend almost $6,000/year and this is for a 10 year policy.  The average age of someone going into an assisted living facility is 85 years old.  Which means that the client that buys the $5,000/year for 10 year policy is going to spend $50,000 and likely never make a claim or use this life insurance policy.

I am going to agree with a lot of what everyone else has already said.  But I have a caveat.  similar to financial mentors.  Like Robert Kiyosaki says and this is so true.  When you are poor Suze Orman is your go to.  When you are stable but don't have a lot of excess money every month Dave Ramsey is the mentor for you.  then as you become more wealthy you need to switch your approach again and build a team because rich people aren't scared of debt, they aren't scared of paying for expertise, because they realize that even though everything costs something on their bottom line the benefit that they get by hiring help is time, and time is our most valuable commodity.  

When you are starting every dollar you spend matters, but as you grow and mature in your financial freedom the dollars that you save by hiring others allows you to leverage your time in other areas that may be more beneficial to you and your growth. 

As far as your original question about LLC's and business operations goes. Separate them. 1 company for the REI, and a completely separate company including bank accounts for the construction company. and make sure to never mix funds directly between the 2 companies otherwise you have broken the "corporate veil" and now even though you have 2 companies in the eyes of the legal system they are 1 and can both be held liable and responsible for anything happening in the other company.

Also make sure that your insurance is up to par.  Construction sites are a high hazard zone and there are workplace accidents on constructions sites constantly.

BP is a great place to learn and there is tons of people with years and years of experience in REI. One strategy that a lot of my clients utilize includes land trusts for owning specific properties and then a series LLC setup. There are many pros to using this type of asset protection structure.

I have had 2 instances where some type of coverage for damages could have been beneficial.  However I was able to go back to the guests, show them the damage they clearly caused, and proof of the illegalities that was occurring when the damage happened.  The guests were happy to pay for the damage when I threatened filing vandalism charges and letting the police know about the underage drinking that the guests were facilitating.  

However if that hadn't been the case it could have been nice to have an insurance policy to fall back on.  

The one thing with passing on the cost of the insurance as a non refundable fee would be for shorter term rentals, like if you allow nightly, that would raise the cost of the stay to a point where you could risk losing bookings.

If you have properly set up your Short Term/ Vacation Rental home owners policy there will be coverage for property damage, vandalism, theft, and loss of rental income.  So maybe you just charge a little more or a small $20 service type fee to help offset the cost of a good insurance policy.

Is this your 1st property? Do you have a specific reason as to why you want to put the home into an LLC? Maybe looking into an asset protection structure that utilizes land trusts would be a better fit for what you are hoping to do?

But yes when you transfer the deed of the property into the LLC you will need to change your insurance policy accordingly.

Most homeowner policies have coverage for property loss caused by volcanic eruption when it is the result of a volcanic blast, airborne shockwaves, ash, dust or lava flow. Fire or explosion resulting from volcanic eruption also is covered.  

But I am sure that there are some homes in or around Hilo that could have opted out of that coverage.  As for what is going to happen with rates across the whole island, I would say that is a total guessing game.  I literally just got back to the mainland a week ago and was able to go see some of the damage that was caused by the 2018 eruptions. 

I will be watching very closely as the big Island is one of my favorite places ever.  

There is an insurance agent on BP who lives in Hawaii, I can't remember his name but maybe he will have some more insight.

 

Florida is definitely one of the worst hit states for increases in cost of insurance.  

The major factors listed above are dead on what is happening and it is being exacerbated by the fact that so many insurance carriers have left the state due to insolvency or too high of loss ratios making it a bad business decision for the insurers to be in the state, and there is only so much that the state lawmakers can do to incentivize insurance carriers to come back to Florida or start writing business there again.

Unfortunately across the US almost every state is going to get hit with rate increases for 2023 in the realm of 10-15%.  Some being much higher.  

Florida is also hard to follow the shop your rates every year or every other year because there are so few carriers to even shop.  

@Andy Chen  I don't know if this thought is valid or not but where the Principal broker had the Agent under their brokerage when this happened they may still hold some liability for the actions of their agent.

Employers are liable for the work and actions of their employees during the hours they are employed.  

If I switch insurance companies today but have to file a claim on something tomorrow that happened 6 months ago the old insurance company is the one that has to pay the claim.

I want to add a little to this conversation.  Definitely get with your insurance agent and inform them that you are going to be renting out a studio that is attached to your property.  Your standard homeowners policy does not cover this space and they will deny the claim if you have one.  If you have an agent tell you that you don't need anything other than your homeowners policy make sure to have them put that in writing so that you have some recourse when the carrier denies the claim.  

On umbrella policies.  You umbrella will cover your personal liabilities and extend coverages in your auto insurance as well as the liability coverages for your properties.  What this means is that if you get into an accident in your vehicle.  if it is your fault you will have coverage up to the combined limit of your auto insurance and your umbrella.  If it is the others persons fault and they don't have insurance or they don't have enough insurance you were smart and you have Uninsured/underinsured on your auto and your umbrella so you will have the money needed to pay for the expenses of that accident regardless of the cost (up to the combined limits of your auto and umbrella policies)  This means that umbrella policies are Hugely beneficial regardless if you have rental properties or not.