All Forum Posts by: Brian Nordman

@Kevin SageThis is where you have to look at the payoff period calculation of the upgrades. For example, if you put $10k of upgrades into the property and by doing so you are able to increase rents to a level that will increase your annual cash return by $1k. It will take you 10 years to payoff those upgrades. If you plan on holding onto the property for only 3 years then you have to consider if it's worth it. But if you plan to hold onto if for 30 I would say heck yes make the improvements. Now, you also brought the concept of ARV into play. If you think by spending the $10k for improvements I used in my example and you hold onto the property for 5 years you have now paid off $5k of the improvements. But you said you could sell the property for $45k more than it's worth now so you would then come out $40k ahead in the deal. The ($10k) + $5k + $45k=$40k.

@Paul Allen Fair point and I know they make their money on policies such as these! I do know that if you withdraw from the policy in the first ten years you tend to lose money on it. This would be where they are gaining on the deal. Whereas if you stick with it and hold onto it long term you will more than likely come out on top!

@Paul Allen That's not necessarily the way that I am viewing this though. My take is that with term life insurance, if I die a day after the term is up all the premiums I paid for 20 years were wasted. So if you stopped paying for auto insurance (which I know is illegal) and you got in an accident the next day, all the premiums you paid in previous years were wasted. Whereas with the whole life insurance, you don't necessarily run that risk. When you end the policy or die, whichever happens first, you will get to recover the cash value of the policy. I'm comparing it as there is less risk involved with whole life compared to term.

@Michael Bracken I understand your thought process! If the tax savings I would receive would outweigh the dollar amount in the increased return I would certainly consider it. Just have to weigh the options!

@Michael Bracken I agree. At that age they may not need the payout financially. But it could be used as a tool to leave my estate to my beneficiaries in a way that provides better tax advantages.

@Alex Shaughnessy wow that is great! If you don't mind me asking, what kind of returns are you able to generate annually? My thought process is that if you're able to generate similar or slightly lower returns as other vehicles, the fact that much of the return would be tax free it more than makes up for the difference of other vehicles that generate better returns that don't have the same tax advantages.

@Edward B. I think you made a very good point here that I essentially need to know my end game or my "why" that is talked about so much on here. It's no different than building a strategy for getting involved in real estate. So I think that's a great point an appreciate that comment. I think that we are both kind of in the same boat that we think they can provide value if used for the right reasons and effectively. I honestly wouldn't mind staying in contact and continuing to pick your brain on this topic as it appears it's something you've been pondering for quite some time.

@Alex Shaughnessy I have a close friend who has used something similar to that. He has a minimum guaranteed return of roughly 3% and a max return of roughly 13% based off the S&P. I think something like what you mentioned draws more interest more than a simple whole life policy.

@Edward B. I guess I didn't realize how touchy of a subject this was! By no means do I have the intentions of buying some random policy. I would very carefully lay out the options and see where it would put me come retirement time compared to investing that same money into real estate. I want to diversify the best I can because I'm a firm believer in not putting all of your eggs into one basket. My goal in this post is to see if there is anyone out there who has used something like this and has been successful at doing so!

@Rob Golob Don't really understand your comment about the whole consumer education thing? But I think one major benefit is that the insurance covers you for your whole life. Compared to term insurance I could die the day after my term is up and every penny I've spent in the past 20-30 years would be wasted because my beneficiaries wouldn't get a dime. Where as in whole life insurance they would be guaranteed a death benefit. 

I also understand I could invest that money elsewhere and get a better return. But like I said the benefit to borrowing against the cash value is that it would be at a lower rate and I essentially don't have to pay it back either. It would just be netted against the cash value at the date of death.