All Forum Posts by: Damien Pagano

Tom, thank you for clarifying some of those things.  You are correct in terms of the mechanism of the Indexed UL, I was describing it vaguely to show the concept, and misspoke by saying indexed funds.  The idea is still the same in that it's tied to the performance of indexes rather than holding ownership of mutual funds/stocks/etc.

For the loans, the difference you described between non-direct recognition and direct recognition is what I was saying, just worded differently.  By saying that there's a "loan on your policy" with respect to direct recognition, I was not saying that the cash was taken out of the policy, but that the company does not pay dividends or interest on it.  I didn't mention that the loans are using the cash value as collateral which is great information for Ian, most people I've talked to initially think of something like a 401K loan which removes the money from your account which is different than insurance vehicles.

The tax situation for mutual companies vs stock companies is still worthy of mentioning.  He said that he wanted to use the policy as an asset for real estate but at the end of the day it's still a life insurance policy.  The point I was making is that there's a difference between the two regarding a tax implication.  I see that the way it was worded might make it look like the dividends would be taxed before being reinvested, which is not what I was implying.  If he was going to at some point (because this is still a life insurance policy) take the dividends as cash instead of reinvesting them into the policy or take distributions down the line, there could be a tax implication if it were a stock company rather than a mutual company.  And just as you said, if he withdrew more than his cost basis it would be taxed similar to a capital gain.  That's all I was referring to - my use of the word "better" is subjective to my own perception of the tax code and how I feel about it.

Ian - Tom is a great resource on here as well as a few others from different posts, give some of their material a read.  Also, if you begin to use this strategy I look forward to seeing a post in the future about how it's helped!

There are going to be a lot of people on here who are going to mention "buy term and invest the difference" because they've been fed information from Dave Ramsey and other financial entertainers that whole life or universal life is a bad "investment". But that's not your question and you're looking to have growth and liquidity, so an insurance vehicle can help you here. 

An Indexed Universal Life policy is an asset that has underlying investments (index funds), but there's also an insurance expense which is basically term each year.  Using it for what you've mentioned is an alternative source of financing that has tax advantages if done right, but the devil is in the details.  That insurance expense will increase as you age, but if you keep enough cash in the policy then that will help to mitigate that increase in cost.  If you don't keep it well funded there's a possibility in can lapse. The policy should be a non-recognition policy (they still pay interest and dividends based on your cash value amount and don't recognize any loans you have out on the policy when making these), and a mutual company would (most likely) be best since the dividends won't be taxed, and can still be reinvested into the policy.

As for the mutual funds - that's more along the lines of a variable product and there are more fees and risk than an indexed policy, plus it's difficult to consistently beat the index.  You seem like you still want it to provide a life insurance benefit, so just use caution in deciding how much risk you want this to be exposed to (risk is related to control, not always reward).

Disclaimer - I am licensed to sell life insurance and we do this exact type of investing with clients, so it can be done if set up correctly, but it's not an "off-the-shelf" type of product.  If properly designed and used, you can do very well with it.  I would look for someone who works in your area that has done this successfully.  I'm with MassMutual (we use a whole life product for this instead of an indexed universal policy), and there are some Guardian, and Northwestern Mutual policies among others that also work well for these.

Good luck in your search.

Thanks Nick, I appreciate the input.  I've got my numbers figured out, the issue I'm running into now is financing.  I've talked to my boss here at my job and he gave me a few resources for hard money lending, I'm going to call around today and see if I can put something together.  The house is a Homepath (Fannie Mae) property and my realtor is looking into their financing options as well, but I'm a recent college grad so my student loan balance (including deferred balance) is what's hurting me for a conventional loan.  In the mean time, I'll continue searching on here and listening to the pro's!

Thanks Guys,

Any quick tips that you'd like to mention to a newbie on the site?  I'm really interested in the contracts and templates and just figuring out which ones I can use in a given situation. I've never bought a house, and throughout high school and college I was always on the construction side of Real Estate, so learning the contracting side will definitely help to keep my confidence moving forward.  I'm excited to find my way around this site and maximize the value here!

Hey Guys,

I've never put an offer in on a house, and a bank owned property I've been looking at just came back on the market in my neighborhood.  The house needs a lot of work, but I think (I'm pretty sure) that I can buy the property ($35k) and do the renovations ($30k) for around what the current assessment is at right now.  Comp's in the area are into the 110's and 120's, and I've done my analysis using the calculators on this site for both the fix and flip as well as the rental.  What I'm getting at is that I think this is a good deal.

I've never put an offer in on a house, so I'm looking for some advice on how to put the house under contract as soon as possible but safeguard myself incase there's mold everywhere or broken pipes, etc.  I know you can put in contingencies for financing and inspections, but is there anything else I should be aware of?  I'm going to look at the property with my agent tonight and hopefully have an offer submitted by the morning if all goes well.

A little background on me - I work for a private equity firm and we buy rental properties, renovate them, and then sell them to investors and usually maintain the management contract of the property.  Most of my estimates are conservative, but I'll still be going through with a few contractors I've worked with just to make sure that my numbers are close.

Hello,

I work in the rental real estate business as an associate for a private equity firm.  I just graduated in May with a Bachelor's Degree in Business Administration, and I'm trying to jump into the investment side of the business.

I've been interested in flipping for a couple of years now without the resources (finances) to make anything happen, or to even justify the risk.  I've just recently become aware of ways to mitigate that risk by wholesaling and contracting options that would allow myself to be but one partner in a real estate venture.  I'm looking to learn more about wholesaling and contracting, and make my first deal within the coming weeks.