All Forum Posts by: Jenning Y.

I have a dozen of condos for which HOA master policy covers the basic structures, betterments, and fixtures. Currently I have HO6 costing about $140~200 for each unit, on top of that I have a personal umbrella. I am thinking about replacing the HO6 with premise liability only policy, on top of that add a commercial umbrella. From liability protection perspective, I should achieve the same liability protection, right?

I know without HO6, I will lose some coverages like personal property, loss of rent, etc. But by saving about $2000 per year on insurance, I can self-insure the other coverages.

What do you think? Thanks in advance.

0 Votes

Originally posted by @Sue Z.:

I found it to be propaganda and I felt like it was a macho response to episode #489. And there were factual inaccuracies. Banks don't lend money "out of thin air" - see Dodd Frank. I'm shocked that they aired this episode. I get it that the fan boys love this guy but his indoctrination efforts are shocking.

Banks DO lend money "out of thin air". If a bank received $1B total deposits from customers, they will lend out far more than that - that's the basic concept of fractional reserve banking system, a concept used by almost all modern banks.

14 Votes

Would you like pork or beef? I believe you will hear different answers.

1 Vote

@Vicky Liu I am a long time OOS investor from Houston Metro.

If I were you, I will do this: wait until the bidding wars ebb, then start looking at Inland Empire or Sacramento. If SFR does not work, try 2~4 Unit. California is still one of the best state for real estate investing, if not the best. If coastal areas are too expensive, that's understandable, then try inland, which will be far better than invest in out of state.

About Atlanta vs Sugar Land, though I do not know much about Atlanta, I prefer Atlanta. Please do not get me wrong, Sugar Land is one of the best place to LIVE, but I am not sure whether make sense to invest there, price is high, property tax is high, Houston Metro always has high vacancy rate in normal time (I know right now is not normal time).

Just my $0.02 .

1 Vote

Nice post @Andrew Syrios , this is exactly what I have done in the past 10 years. I have invested out of state, bought properties at market prices, and have break-even cash flow, still increased my equity (thus net worth) by 24 folds. Since I am heavily leveraged, I also pulled out a large chunk of equity(about $0.4M) as cash reserve in the last two years. It worked perfectly for me.

4 Votes

His statement makes sense financially if one wants to live in a luxury high-end property. For example, if someone has $5M cash while want to live in a $10 Millions mansion, he probably do far better financially by renting the $10M property and investing the $5M in rental properties rather than dumping all his $5M in the $10M mansion.

Of course, there are other non-financial factors mentioned by others.

2 Votes

Originally posted by @Mike S.:

Originally posted by @Tony Kim:

In your example, you use an index return of 7% less 1% in fees. Is 6% a realistic return that one can expect with one of these policies?

Since you are using 3.5% when taking out a loan, I'm assuming you're using today's yield-starved environment to determine the interest rate. But in this same environment, will our policy really earn 7%? What are the returns based on... because that's an extremely generous yield.

Does borrowing against your policy generally allow for these types of very low-interest loans? Also, I noticed you were using an IO loan? Or were you just cutting out the principal portion of the cash-flow?

Since the initial few years, costs can be around 15%, does that mean our cash value after two years into the policy would be around $17,000 if our annual premiums are $10,000?

I suppose my main skepticism with this is just how easy it is to earn that arbitrage. 6% is very high, and a 3.5% loan isn't easy to come by. And with that arbitrage, is it worth the time it takes to build up your policy's cash value in order to get this started? I personally believe this would be great for someone who isn't active in investing and would just like to have a set-it and forget it cash value policy which he/she can tap into when needing a no-cost loan for something like a new car or home improvement project, but perhaps I'm missing something.

Current reasonable yield in a WL is in the 3~5% range. An average yield on a IUL would be in the 5~7% with some years at 0 and some at 10%+.

Policy loans are dependent on the carrier, and you can find fixed loan in the 5~8% range, indexed loan in the 4~6% range. Policy loan repayments are flexible usually, and you can pay back nothing, interest only, or principal and interest as you wish and when you wish. Most of the carriers have also a neutral arbitrage loan options where the rate of the loan is the same as the return.

Third party loans, secured by the cash value, are currently around 2.75 to 4% depending on the lender and amount of the loan. Most of these loans are interest only.

So with a third party loan, positive rate arbitrage is the average norm, but some years it could be negative (especially with the IUL volatility).

Regarding the initial cash value in the first years, it depends on the way your policy is set up. You can have a policy that will give you around 75%~85% of all the premium you paid available as cash and surrender value from year one with an additional rider. Or you can have policies that will show the same cash value, but the surrender value will be much lower in the first few years, limiting your ability to borrow from it until the surrender value catch up. Depending on how you expect to use your policy, an experienced agent can tell you which option would be best for your situation.

In your example of a $10,000 yearly premium, here is an example of a typical IUL illustration for the first 10 years for a non-smoking 35 year old female in good health. In this first example there is no rider to enhance the surrender value early.

	Premium	Cash value	Surrender value	Death Benefit
1	$10,000	$8,492	$0	$559,533
2	$10,000	$17,529	$6,349	$568,570
3	$10,000	$27,178	$16,097	$578,219
4	$10,000	$37,499	$26,516	$588,540
5	$10,000	$48,537	$37,654	$599,578
6	$10,000	$60,344	$49,571	$611,385
7	$10,000	$72,972	$62,310	$624,013
8	$10,000	$86,479	$77,591	$637,520
9	$10,000	$100,926	$93,818	$651,967
10	$10,000	$116,806	$111,478	$667,847

And the same policy with a rider to get access to the full cash value early, but as you see there is cost for it as now it takes 9 years instead of 6 to absorb the fee.

Thanks, very helpful, good to know that insurance loans include policy loans and third part loans. Is it easy to get third party loans? Maybe I should ask, are third party loans always available? Thanks again.

0 Votes

@Maria Callaghan

It all depends.

For some new communities, especially for OOS investing, having a good HOA is not bad at all. We all know that tenants are not good at keeping yards clean and HOA can enforce that and can save landlords lots of headaches.

However, once a community is getting older, repair costs added up, more and more restrictions and rules are added, will become vicious cycles.

1 Vote

This topic has been discussed (or better say argued) enormous times. I am not a fan of the product but I am a fan of this topic.

From my limited knowledge, to me as an investment ( not insurance) vehicle, it only makes sense in these following two cases:

If you are short term private money lender, because you have lots of money coming in and out all the time, and you have lots of money sitting them doing nothing periodically, so it makes sense to have a policy at least earn something when the money is not lent out.
The rate arbitrage opportunity DOES exist. For example, if the policy return rate is 6%, while we can borrow out at 4%, we can get the 2% rate spread. My question is, does the rate arbitrage opportunity exist, and how sure can we get the spread?

1 Vote

@Melanie Liu

I read an article on Wall Street Journal not a long time ago told the same story. A couple signed a contract to buy a new-built home, the property was almost ready but just before the delivery, the contract was canceled by the builder. The buyer said the builder later sold the property at a price probably more than $100k above their contracted price.

But in their contract there's a special clause allowed the builder to exit. And the builder said the buyers were too picky and were difficult to deal with and it was impossible to work with them. No sure which side was right. Look like eventually the buyer could not do anything about it in their case.

So if you want to fight, try to find an attorney and study the contract, to see whether worth the fight. Lots of special clauses can be inserted into a contract.

2 Votes

All Forum Posts by: Jenning Y.

Jenning Y. has started 4 posts and replied 164 times.

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