All Forum Posts by: Mike S.

Quote from @Steve Vaughan:

The more important issue than this accounting is to make sure your title insurance and hazard insurance remain in effect when quitclaiming to a disregarded entity. 

Do not use a quit claim deed. Use a warranty deed when transferring to the LLC.

When set up properly with WL or IUL, you should crossover and get more in cash value than premium paid between year 4 and 7 depending on your specifics.

Quote from @Matt Ruttenberg:

It's a great concept and if designed properly, can be very beneficial.  There two schools of thought with either a Whole Life Policy or an Indexed Universal Life policy... I'm a fan of the IUL personally because of the flexibility and a much easier design.  You can use it like a Fix n' Flip then refi out to pay off the loan... rinse, repeat.

I am also in the IUL proponent camp. But the concept is the same. You just want to use the loans to buy assets and not liabilities. I never liked the example given of using these strategies to buy a car, they did not make sense to me. To buy assets however, you are making your money works at two places at the same time. It's a long term play that has some upfront costs, but when it starts to take off, what a beautiful system...

Also please don't use a will for your estate. Probate is slow and expensive. It can take a year before the title is transferred to your heirs through probate, and during that time they can't sell it nor lease it.

Everyone should have a living trust and the property should be titled to it, or if you live in one of the states that offers it, you can use an enhanced life estate deed (Lady Bird deed) either with benefit to your heir directly or to your living trust.

Quote from @Nils Fischer:

Would it also be possible to just have an anonymous LLC in WY and then land trusts in various states as needed? Or is it still important to have an LLC in each respective state? (considering long-term rentals only)

By using only one holding LLC and multiple land trusts in each state you can create a few issues:

First regarding asset protection, a land trust does not protect from inside liability (except in Florida). So if you have an inside liability event in one of your property, all your land trusts are at risk.

Second, some states do not recognize a land trust as an entity, but as a title holding device. As such, the land trust itself can not start an eviction, the trustee will. If your trustee is an entity, it has to be registered in that state to have a legal situs. So you again will need multiple trustee's entities in multiple states. You can probably bypass that if you use a local property manager for each property.

Quote from @Chris Seveney:

On a real estate forum they will get questioned - why? Because they are not an investment strategy.

It’s an insurance policy and can be used to diversify a portfolio to hedge against some risk which is why some ultra wealthy use it if it guarantees a return slight above the risk free rate of return. If you have $1B you are not concerned with 4% vs 6% you are concerned with massive losses.

Long term it’s 1/2 the return of stocks and real estate which again - depending on your portfolio it may not be a bad thing just like people have bonds or your mutual fund has bonds in it.

Just make sure you understand the product

It's not only for ultra wealthy. It works even with policy premium as low as $10k a year.

What you fail to understand is that you are getting these 5%+ tax free return in addition to your other investments. Because you can use the cash value as collateral for a loan, the same money is working at two places at the same time. It's like buying a house that is appreciating every year and taking a HELOC on it to reinvest the same money in other projects. By using that leverage, your money is growing faster. And if you are using a loan from a third party for investment purpose, you can deduct the loan interest as investment expense. So it is not per se an investment product, but it is a system to use with your investments.

On top of it, you get a life insurance that will protect your family in case of premature death and the life insurance is protected from creditor.

There are also other uses of these kind of life insurance for retirement purpose. While it grows slower (but with much less volatility) than an IRA or 401k, you can take more money out during retirement and for much longer.

Quote from @Don Konipol:

I’m always amused by the almost violent reaction proponents of these products exhibit when someone questions, or sheds light on the value of the product or on the ethics of the industry.  The defense, as is your, almost always breaks done to “everyone else is bias and unethical too”.  No, they’re not.  

I am not amused by people making broad statements that life insurance is a scam and life insurance agents are scammers.
Again if you read my response, I am not saying everyone is unethical. It was a satirical answer using the same argument as yours.

You can expect a net long term IRR, after all fee, commission, etc of 3-5% with a properly set up whole life insurance and 5-8% with an Index Universal Life Insurance.

They are not terrific product regarding their return, but you don't have negative years like in the stock market, and they are tax free. They are also asset protected against creditor. And during retirement you can expect getting a 8% per year draw compared to the 3-4% recommended for IRA/401k as you are not withdrawing the money but borrowing it while the full cash value continues to grow uninterrupted. Also compared to retirement accounts you don't have to wait until you are older to get money out of it, you don't have required minimum distributions, and when you die you heirs are getting the death benefit tax free and don't have a set amount of time to use it.

Last, your rant about life insurance agents are bias and crooked because they get commission is old and hypocrite. You are a mortgage broker and getting commission on the mortgages you sell. So you are obviously biased and lying to you client when you recommend a mortgage. Real estate agent are getting commission so they are biased and lying to people when they recommend a house. Financials advisers are getting commissions when they recommend financial products so they are biased and lying to people when they sell.

Every profession has crooks. But every profession has respectful individuals who are doing right for their customers. Crooks usually don't stay long in business. That is the same with life insurance agent.

Yes some real unbiased source are recommending permanent life insurance as a way to diversify your asset. It is not for everyone as it is a complex product that needs a good execution. Same as real estate is not for everyone, nor stock market, nor options trading, nor commodities, nor futures, nor bonds, nor annuities, nor notes, ... But because a certain class of asset does not fit YOUR investment profile, it does not mean that it is bad or unfit for others. So stop denigrating a product that has plethora of advantages and educate yourself to understand it.

Your operating agreement.  Do you have a section that says you can vote or choose to stop income/cash distributions? Why do you need this?

 Very important clause in case of charging order. You also want to allow unequal distributions. It may also not be subject to vote, but just by decision of the manager.

Quote from @Edward Suess-Hassman:

I have a 457 I put money into that I can leverage, but after that where should it go?

If you take a loan out of a 457, you are not leveraging. Your principal balance is lowered and you are paying back principal and interest back to yourself. Not only your money is only working at one place at the same time, but you can't also deduct the interest or you will have to recognize the interest income too.

You can borrow on margin on taxable brokerage account, but it is very risky as when the market drop, you get a margin call and risk getting liquidated with amplified loss if you can't put the money back immediately...

The better equivalent would be a HELOC on your property.