All Forum Posts by: Mike S.

I would suggest you invest some time watching carefully the hours of information available on the Clint Coons Youtube channel.

While there are different levels of structuring you can do for asset protection, and after having studying this field for over ten years now, this is the best comprehensive resource I have found on the net.

There are some more extreme asset protection techniques with offshore entities and trust that are not really discussed in this channel, but these are often not very useful for real estate asset as a local judge in the jurisdiction where the real estate asset is located can completely ignore the offshore part and seize the local asset. It is great however for cash, brokerage account, or foreign assets.

I don't have anymore any paper receipt. Every single receipt is scanned and saved in the proper folder on my computer. The paper original then go to a temporary basket that is shredded every month (they are just kept for a few weeks in case or store return).

It take almost the same time to scan and name the file than finding the proper paper folder to put it in.

At the same time I am also imputing the data into my excel books and even put a hyperlink to the receipt file.

The day when I am looking for a specific receipt, I am saving not only tens of minutes, but also a lot of aggravation as I can locate any receipt in a few seconds. It has happened many times when looking for warranty information. And if I have an audit, I just need to click on my book links and the receipt pop up.

You of course need a proper digital backup plan for all your data, but it is no different than if a flood, a fire or rodents destroy your paper archive.

Last but not least, when I am not home or traveling, I can still access all of them from my laptop.

I am doing the same with all my bank statements: I am downloading them religiously every month. Some banks will only let you access the last two years of statements, while other will cut your access immediately after you close the account. So I have every single of them in my own computer folders.

Quote from @Aaron Porter:

@Nicole Heasley Beitenman  There are some 401K accounts that allow you to borrow more than that.  I don't  know anything more than that about them but I have a few clients talk about them.  

It may be worth doing some investigating and maybe moving your current 401k to somewhere that allows you more access?

To my knowledge the $50k or 50% of the value, and 5 year payback is an IRS rule;
However there are exceptions that let you borrow up to $100k or 50% in certain circumstances: first home purchase or special hardship condition. During COVID a special rule let withdraw $100k without penalty for 3 years.

Quote from @Nicole Heasley Beitenman:

Beyond the match, I don't plan to invest in a 401K beyond $100k. You can only borrow half of your 401k up to $50k, so once you hit that ceiling, it's pretty useless. I'm only interested in borrowing against it for other investments. 

The borrowing out of a 401k is very limited in time and amount ($50k or 50% of the value, whichever is lover). Not only you have to pay it back within 5 years, but also you can't deduct the interest. Investing in real estate through a solo 401k on the other hand is very powerful. But to be eligible to a solo 401k you need your own side self employed business and make enough money to contribute.

In the context of using it as a cash pool to borrow from, a cash value maximum overfunded permanent life insurance may be a better fit as you are not limited in the premium and you can borrow up to 90% of the cash value. Also, if using a third party lender, you can deduct the interest of the loan as investment expense. When borrowing from a 401k, the balance of your 401k is lowered by the loan amount so your money is not working any more (except for the interest you pay back to yourself)... When you borrow from a cash value life insurance, the cash value does not change. You are still earning dividend/interest on the full amount of the cash value, while you are using the same money in other investment at the same time. So your money works at two places at the same time. Pretty powerful concept.

Quote from @Paul Vail:

Quote from @Chris Breezy:

Would a 457 be tax deductible 

Chris, no.   401/403/457 -- these plans all come out of your paycheck BEFORE taxes are calculated.   And their earnings are TAX-DEFERRED (not tax free like HSA or Roth IRA earnings), so you would pay taxes on the withdrawal (distribution) when you elect to take them.   But -- contributions lower your taxable income.  So if you are in a higher bracket now than you'll be in retirement, that's also a win.

Some 401/403/457 have Roth portion and you could contribute after tax money. So you will pay income tax on it now, but it will come tax free when you retire.

The issue with these plans is you can only invest in some limited classic bond/stock related funds or ETF offered by your plan manager. Also, this money is locked in the plan until you quit or retire (with some other limited way to access it through short term loans). If you have a side self business, it may be advantageous to create a solo 401k for it, and as the plan trustee you could then invest in any real estate venture you would like.

Cash value life insurance are similar taxwise with Roth plans in the fact that you put after tax money into it and when you die, the death benefit goes tax free to your beneficiaries. It is also asset protected against creditor. On the other hand, there is no hard contribution limit (but may be limited by what each insurance company will agree to insure based on your age and health ); it is very liquid as you can withdraw your contributions anytime (not recommended). Better, you can take a loan using your cash value as collateral while the cash value continues to grow (similar to taking a HELOC out of your home). So you can reinvest that money into other investments and you money grows at two places at the same time while you can deduct the interest of the loan as investment expense (if using a third party lender instead of the insurance company itself).

Personally I am using Roth IRA, Roth 401 and cash value life insurances. They are complementary in my portfolio and not exclusive. More than 80% of my yearly contributions are going toward the life insurance and the "classic" retirement plans are less than 20% of it. During retirement, I will have different buckets of resources to use, including my real estate passive income. Each of them are evolving differently yearly and the diversification will insure I can take money the most efficient way when needed.

It's very close to Infinite Banking. There has been multiple threads on this forum about the benefit of using a maximum overfunded cash value permanent life insurance as the place where to circulate your cash flow.

The Infinite Banking crowd only swear by Whole Life insurance; There are other options like Index Universal Life.

In a few words, it's a long term play as the upfront fee make it a negative return until year 5~7 depending on the product. After it become a good wealth multiplicator as your money is working at two places at the same time.

It has great asset protection, liquidity and tax advantages. On top of it, you have a life insurance that will provide for your family if you die early.

However it is a complex product and you will need to spend enough time to understand its intricacies and use a knowledgeable life insurance agent who is specialized in it as the vast majority of them don't know enough how to use it or are unwilling to sell it because, if properly set up, it gives them a lower commission.

I am using the same concept but with Index Universal Life Insurance instead. Better return on the long term than Whole Life but with more volatility year to year.

Quote from @Dmitriy Fomichenko:

@Ernesto Barragan JR

They have a vested interest selling the policy to you, they do not have your interest at heart.

Do not trust any financial advisor, they have a vested interest to manage your money. They don't have your interest at heart...

Do not trust any real estate agent, they have a vested interest to sell you the most expensive house. They don't have your interest at heart.... They are making a 3% commission on the sale of the house for just driving you there...

Please don't generalize by making such broad statement. Yes there are unscrupulous people in each profession, but saying a whole profession is unethical because a few of their members are is ridiculous.

An optimized overfunded permanent life insurance policy give less commission to the insurance agent as he or she is tweaking it to give the best return to the owner by lowering all the fee, including his/her commission.

The long term IRR of an optimized whole life insurance is in the 3-5% range; The long term IRR of an optimized Index Universal Life insurance is typically in the 5-8% range.

Yes it is not excellent compared to some 10-20% IRR you can get with real estate, but you have to remember that it is also tax free (so a few percent more to compare apple to apple). It is asset protected, it is liquid, it does not go down. On top of that, you also have a life insurance in case you die early.

Last but not least, you can use the cash value as collateral for a bank loan at sub prime rate, and reinvest that money to outside investments while deducting the interest cost. So your money works at two places at the same time. By combining the two, your returns are higher than if you were only investing without the life insurance in the middle.

Quote from @Drew Sygit:

If a legal issue occurs with your property resulting in a lawsuit, there's a decent chance the plaintiff's attorney will be successful in "piercing the corporate veil" of your LLC and being able to sue you directly.

To pierce the company veil of an LLC is not that easy. Of course if you are sloppy and commingle fund, or not record annual meetings, or sign in your personal name instead of the LLC name, that will make the job of the plaintiff easier. But with basic company management and bookkeeping, the hurdle to pierce the company veil is very high.

I would suggest the latest book from Garrett Sutton, Veil Not Fail: Protecting Your Personal Assets from Business Attacks, that goes in detail into the errors not to make to avoid piercing the veil.

Anonymity is also recommended to avoid ambulance chaser attorney finding your assets.
I have seen in this forum a lot people complaining that it was not worth it as in a lawsuit you have to disclose your assets. No, you will only have to disclose your asset during a late phase of the lawsuit, mainly if you have lost. By hiding your asset, you are already avoiding many lawsuits to start.

Also by having LLCs, the plaintiff's attorney will only have a reasonable expectation to get only the company asset. If they are mortgaged, there is not a lot of equity left to reach. And as it is very unlikely to pierce the veil and will take a lot of attorney's resources, if there is no known other assets to go through it will be difficult to justify the cost. You will get in a much better position to settle for the insurance amount than going to a full lawsuit.

Last, even if the corporate veil is pierced into one of your LLC, if everything else you own is in other LLC, the plaintiff will then need to reverse pierce the veil on these other LLCs too as the charging order will block any access.

Quote from @Sam Mathew:

Thank you all for the guidance and feedback.  Quite a bit to take in and research on this topic.  I didn't mention also, but being a single dad, I should look into some type (i.e. Estate Trust) that will allow me to minimum any government taxes for my child in the future, in case anything happens to me before I one day liquidate my rentals (which I don't really plan on).  So that adds an interesting layer...not just 1) Protection but 2) Minimize taxes for my family in the future.

There are multiple ways to take care of it. But I would suggest you look into maximum overfunded cash value permanent life insurance (whole life or Index Universal Life) properly set up. They are great multiplicator of wealth when incorporated in your investment cash flow and also provide substantial death benefit for your family if you die early.

If your estate will be substantial (over $12M for current estate tax exemption), and if you want to put some money aside for your kids now, you can also look at creating an irrevocable trust for each of them and funding them every year up to the gift tax exemption ($16k yearly currently). You can also with that trust buy a cash value life insurance, or invest the money but you will then have to pay trust tax rate on any gain.