All Forum Posts by: Kevin Romines

[b]Well its been a couple of years since I was in the mortgage industry, and you know how much the mortgage industry rules have changed in the last 5 years. But I will do my best to answer your questions.

All mortgages these days have a due on sale clause in them. This means that if you transfer title in any way to another person or entity then the underlying loan needs to be paid off at that time. When you transfer title to your own LLC this is still a transfer in title and you have then violated the due on sale clause. This means the lender can call the note due at their discresion. Will the lender call the not due, maybe, maybe not????? You could put the home into a trust and then assign or transfer the beneficiary rights of the trust to the LLC, however with a VA loan I do have to ask why you might want to do this?

The reason I ask is that with a VA loan, you can only have 1 loan out at a time, so if you transfer it to your LLC and dont plan to refinance the loan for a long period of time, you have used up your VA loan option for future financing.

The better option is to refinance the property to a FHA / Fannie / Freddie type loan while its still owner occupied, and live in it 1 year to meet the min. owner occupied requirement of the loan and then transfer title if your going to still transfer title. Your still subject to the due on sale clause, but you have the VA loan available for 100% financing of another owner occupied residence. A soon as you have enough equity built up into the property, your LLC can then take out a commercial loan if you want, but the rates and terms are different than residential.

I would recommend some reasearch on trusts, as they can be an effective way to transfer title without the lender and others knowing what has taken place. Be careful of the changes to the insurance, as this is one indication to the lender that the title may have been transfered.

The advantage in using this technique to fund real estate and other needs in life is that 1st you are in need of a life policy and then you also get the added advantage of cash value with a guarnteed value, a dividend which increases your cash value and death benefit. This can be 2 tools in one. A CD, IRA, and most other financial tools may be great to use to park your money in to have available for when you need it, but none will give you a death benefit. This is for your heirs and also an effective estate planning tool.

Best of all, if used correctly you avoid taxes on the use of the money, and the interest on the loan payments may be tax deductible considering what you used the money for (check with your accountant).

Current marginal tax rates are near all time lows, that coupled with out of control government debt and spending. So ask yourself, where is the likely marginal tax rates headed in the coming years? You are going to need a way to minimize the taxes or best of all not pay any at all on your gains. Taxes and inflation are some of the biggest risks and hits we have to our investible pools of money.

Are you really saying you would rather have a 9% return that is not guarnteed in the market and then pay 25-39% taxes on that return, vs. having a 5-6% return through a life policy of which about 3% is guarnteed and all without any taxable events when done correctly, oh and not to mention that the market wont pay your family when you die other than what you had at risk in the market. The life policy keeps the family living at the lifestyle that they are accustomed to.

Again, its not the end all cure all, but it is a very useful tool when 1st understood, and 2nd used the most effectivley. A smart investor wouldnt just take what is being said here on the forums, they would truly investigate to determine if it is a worthwhile strategy and fits with their goals and plans.

The old buy term and invest the rest only works if you die during the 10,20 or 30 year term, and also if you truly invest the rest with great success. That may fit some peoples needs and if thats the case, I would recommend that, but for some, maybe even most people it just flat fails. Buy term and investe the rest, well if I did that I better be absolutley sure I'm going to die before 30 years or my 80th birthday or that whole line of thinking is a failure. Invest the rest, well for all people on this forum thats probably not an issue, you have the ability to save your money and use it specific puposes.......The vast majority of America doesnt have that ability, so what really happens, they buy term and spend the rest, somewhere along the line........

Suze Orman has been a buy term and invest the rest kind of gal for forever......I feel bad for her audience, so ask yourself why her parent company executives and the company its self owns millions in what......wait for it........WHOLE LIFE POLICIES........Huh......sounds interesting at best.....if not down right hypocritcal...

In the end is a whole life the only and best tool for everybody....no, it is a great tool, very effective at what it can do if used properly........I put my money in it and will continue to do so.

I read this thread recently and was very interested in the topic and responses. It seems to me that there may be some misunderstandings about this topic. I will do my best to address the issues that have been brought by everybody.

The 1st thing that a life insurance policy is for, is just that, a life policy for the benefit of the survivors needs. That said, some life policies have additional features that lead a person to think of them as an investment. They are NOT an investment, however they have some features like investments, but they are not investments.

2nd is the argument of term vs. whole life. Here is the best way to determine what you really need; If you need a life policy for a specified period of time, but it may not be around when you pass, then term is most likely your best bet, but not always. For instance, most terms are bought as 10, 20, 30 year policies. Another little known fact is that term is typically not allowed past the age of 80, so if you want it when you die, and your family has a longevity history well beyond 80, a term may not be the best choice. If you can tell me exactly the day you will die, I can get you exactly the correct policy, if you cant, then you need to hedge your bets and make sure its there when you need it. Thats where some form of whole life comes in.

If you want to be assured that the policy will be there when you die, the only way to do that is with some form of whole life policy, and make sure the premiums are paid or its in a paid up status, so it is active when you pass. That said, lets talk about some of the features of a whole life and why or why not, it may be a useful to for you in life and real estate?

Whole life has 3 major components from a buyers standpoint, 1) life insurance policy 2) cash value 3) dividends
If you decide to borrow from the cash value, 1st you dont have to qualify like other loans, you just request the money against what value you have in there without lapsing the policy. If you only do policy loans, you will not be taxed. The only time you will ever be taxed on your gains is if you surrender or lapse the policy, but policy loans are not a taxable event. You can decide if you want to pay the loan back, when you want to pay it back, and at what amounts you want to pay it back. Lots of nice features there.

My company currently pays a guarnteed rate of 3% on your cash value, in addition you typically get dividends. Now dividends are not guarnteed, but in the 75 years of offering life policies, we have never NOT paid a dividend. Currently our dividend rate is between 2-2.5%. That means that your internal rate of return is 5-5.5% and can be taken out non taxed, that would be equivilant to a 5.88 - 9% in the market. However at least 3% of our is guarnteed, nothing in the market is guarnteed.

The other major feature about a whole life policy is that you can choose from many dividend options. The one I like and set most of my clients up with is the dividends buy additional paid up life insurance. This will then grow your death benefit over the years as well, so if you do take out policy loans, it then will be against a higher death benefit and cash value.

I own a large amount of whole life on my whole family. My wife and I are going to use the cash value to help supplement our retirement and yet there will always be a certain amount of death benefit left for our heirs.

Now am I saying that a whole life policy is the best tool for real estate investing, no I'm not, I'm sure there are many other tools that can be used, but I am saying, that you 1st truly need to understand it, and yes, I feel it can be one of a few great tools in your tool belt to accomplish many of lifes goals, including investing in real estate.