All Forum Posts by: David Emerson

I believe our friend is referring to the cost of insurance and other policy charges that are assessed on purchasing a policy. So if your premium is $10k/yr for a $1M policy, part of that $10k is going to go to policy charges and the remaining part is going towards policy value. So if it's $5k covering charges & $5k available as policy value, he's saying it will take much longer for that to compound as opposed to putting $10k in the market - which he's correct. The part that is being left out though is that the life insurance contract is heavily tax advantaged which is conducive to enabling this sort of "be your own banker" approach. Brokerage accounts don't have that same luxury. 

I'm an internal wholesaler at one of the larger Life Insurance carriers in the space. Though we don't offer Whole Life contracts, I see them frequently, and I used to be contracted for a short time by another carrier who's bread and butter was Whole Life.

The "Be Your Own Banker" concept is something everyone is familiar with if you work in this space. Like most things, there are pundits on either side of the argument - most of them have an agenda because they're trying to sell you on one idea vs. another. Overall, it's proven to be a viable option, but like what many others have mentioned here there are alternatives.

The big thing to consider here is that every company offers a different product and pricing, and those products/pricing mechanism change very frequently. In my 3 years with my current carrier I've seen many many industry-wide changes due to the macroeconomic environment, attempt to take market share, attempt to hedge against certain risks, industry regulation, etc. This is why it's best to consult a financial advisor to see if your idea would work based on the current environment and your personal constraints.

In theory, if I could take a loan from my life insurance policy's cash value at a fixed 3.5% but then lend that money out to someone at 5%, I could profit on the spread. I would pay the loan back + interest into my life insurance contract and the excess would be up to my choosing. I could even put the excess into the life insurance contract too to continue over-funding it. This is where the power of compounding + potential dividends (for Whole Life contracts) would accelerate my values.

A lot of people who are high net worth & are heavily invested in Real Estate look towards Premium Financing to get these contracts started - but the details of this are a bit outside of my scope of knowledge. 

Life Insurance can get a bad rep, but it's something every wealthy person uses one way or another. 

Many of the homes I've been doing deal analysis for have been built between 1940 - 1980. I've been looking at multi-family properties with the intention of seeking owner occupancy and renting out the second unit & additional bedrooms. What are some major factors to consider when analyzing these relatively older homes?

Thank you all for your input and feedback!

@Anthony Thompson thanks for mentioning the 2 - 3 months look back for the bank statements. I think this would be helpful if we go down that route. We also have a very good relationship with our local credit union so if the "gifting" approach is common I think we would be able to navigate those waters with them. Regarding the agreement, I think the informal letter would be serviceable given our relationship. I've been mainly using Realtor & Zillow for the preliminary searches to get a feel for the Southern MA/RI area, but if you do know of some reputable agents and are willing to connect us that would be greatly appreciated!

@Luan Oliveira you bring up a really solid point. I've been leaning towards the FHA 3.5% down and that's not something we see eye-to-eye on. Perhaps house hacking the first property on my own and looking for a separate investment property with more down would be ideal - we've also been looking at the Somerset/Swansea area with the train to Boston being worked on in Fall River eventually.

@Sam Albert that's good to know. I did work in Providence for 4 years or so and looking back I can see what you mean. I had spent most of my time near the Mall, JFK plaza, Federal Hill, and the East Side. This reassures my thought of driving the areas where I see most of the listings to get a better feel for what's available.

@Drew Sygit thanks for breaking down some pro's and con's and building on Luan's comments. I'll likely have a conversation with our credit union to disclose what we're intending to do and see what they recommend. All things considered, I'd rather preserve our relationship with them as opposed to taking the easy route for a first property.

First time posting on the BP forums so please excuse the green behind my ears, but I appreciate any and all insight here!

I'm looking to purchase a first residence in the Providence, RI area for house hacking purposes. I, personally, am a first time home buyer with what I believe would be considered excellent credit and sufficient income. My original plan was to focus on a multi-family and rent out the unoccupied unit + unoccupied rooms in the unit I plan on occupying, or a single-family and rent out the unoccupied rooms. In my head, I was planning on putting anywhere up to 10% down with most properties I've been seeing are listed (although I've heard the bidding is crazy in the area) around $300k, give or take. 

However, my family member that is financially independent and is sitting on a sizable amount of liquid assets (mainly cash, brokerage, and penalty free distributions from retirement accounts since they are of age) that has always wanted to purchase a rental property. This family member is happy that I am expressing interest and would love to be a part of a first rental property. They are not overzealous and I'm sure this may be a one-time endeavor for them, but we have discussed what our interests are and are seeing eye-to-eye on this.

This family member purchased their first home with 20% down, was quick to pay off their mortgage, and has always lead a debt free life (as do I at the moment). They are adamant that they do not want to pay PMI and would want to put down at-least 20%, most likely more. They don't mind putting up more cash up-front relative to my contribution while remaining equitable partners.

With the context out of the way and getting to some actual questions...

• - The thought is that the property would be under my name. With funds coming from both myself and the family member, how would this be viewed by a lender? Would there be any potential roadblocks to consider?
• - How do these partnership approaches generally get structured from a legal/contractual perspective?
• - What are some key action steps you might advise for a first time investor/buyer? Things to consider in Providence, RI specifically?