All Forum Posts by: Thomas Rutkowski

Hey all, I'm a smalltime investor currently living in a flat of a Chicago 2-flat while renting the other out, and also have a SFH rental in OH. I'm not looking to scale anytime soon. I have my personal emergency fund stored away in a HYSA, and am working to build up a15k property reserve as well, but am conflicted on where to keep that 15k. We don't have kids (might in the future), my husband and I are young and healthy, have stable high-income full-time jobs, and just put in a lot of work to both properties so don't expect huge expenses in the near future. Both properties are in A areas with great tenants. I know that the general guidance is that emergency funds aren't to be invested, but given our financial security and the fact that we already have a personal e-fund in a safe, non-volatile location, would it still be crazy/unwise to invest this 15k in an S&P500 index fund in a brokerage?

I've looked through the forums and can't find answers to a question similar to mine so I thought I'd post. Would love to know your thoughts and hear if anyone does anything similar with their personal vs property funds. Thanks in advance!

This is a great question. An emergency fund needs to be liquid, and immediately available to you in addition to being low risk and protecting principle. For these reasons, we don't invest our emergency funds in anything that has volatility and we can't write a check against it the same day for an emergency. I don't like the returns but we use regular savings accounts. The returns suck at a little over 3% per annum but we deal with it.

Another idea that we have been exploring is using the cash value of whole life insurance funds for emergencies. We'll only do it if we can access the funds immediately.

I am a proponent of using life insurance as an emergency fund. It earns a great rate of return compared to a bank account and is fairly liquid. It is not something that you can access immediately, like same day.

It usually requires 2 Business days to process loan request. But somebody could use a credit card fund the immediate need and then pay it back with the policy loan fairly quickly.

1 Vote

Quote from @Tim Silvers:

Quote from @Thomas Rutkowski:

Seller sells to an irrevocable trust on a 30-year installment sales contract. Trust sells to buyer for cash. Trust invests the cash to make the payments on the installment sale to the seller. In 30 years the balloon payment is due to the seller and that's when the taxes are due.

Coupling a monetization loan to an installment sale accomplishes the same thing but puts cash in the sellers hands that can be re-invested. I think THIS can be better than a 1031 exchange because the seller will start off with a fresh depreciation schedule in the new property. That immediate tax savings in the new property is better than the infinite tax deferral of the 1031 exchange.

Some questions:

1) why use an irrevocable trust?
2) wouldn't the interest be taxable to seller?
3) can the seller refinance or extend the terms of the contract?
4) would this also work to defer gains on fix and flips?

1. It needs to be irrevocable so that it stays outside the estate of the seller.

2. Yes.

3. I don't see any reason why a legimate, arms-length transaction could not be done.

4. No. Income vs Capital Gain.

1 Vote

@Gary L DeSoto

The fact that you are a real estate investor does not matter.

However, if you want a well-designed, maximum over-funded policy that can be leveraged for real estate investing, there are really only just a few companies that have everything you need.

Minnesota Life

Allianz

National Life

Ameritas

I don't want to write a book here, so if you want to know why most other companies WONT work, just PM me.

0 Votes

Oklahoma City, Oklahoma

@John Salcedo

Interest rates on a Cash Value line of credit are pretty high right now. Most of my clients are choosing to use a policy Loan instead (from the company). Policy Loan rates are pretty low right now... but it depends on the company too.

You can try Integrity Bank and Trust in Colorado Springs. Ask for Toby.

1 Vote

@Kylie A.

Maximum Over-funded Life insurance policy for sure. Where else can you earn 6%+ and have immediate access to your funds when needed?

And when you do take a loan against the policy's Cash Value, the Cash Value continues to grow (since its only serving as collateral).

2 Votes

Quote from @V.G Jason:

Quote from @Thomas Rutkowski:

Quote from @V.G Jason:

Quote from @Mike S.:

Quote from @V.G Jason:

No, life insurance in all forms is an incredibly stupid vehicle to put money in.

I strongly disagree with you. A properly structured cash value permanent life insurance can be an incredible tool in your wealth building strategy. You obviously have not studied enough this asset class.

By borrowing from it you can make your money work at two places at the same time, increasing your total return. It's a long term play as the front loaded fee takes a few years to recover from. But in essence it is not different than using a refi on a real estate property, except that you are protected on the downside as the cash value only goes up while real estate can go down. And on top of it, you have a life insurance to protect your family in case of early demise.

If it was so bad, why would so many sophisticated investors using them? You just need to find the right insurance agent specialized in this kind of policies as the run of the mill policy is definitely not what you want for that purpose.

If you're paying your expense fees up front, it's going to be a terrible investment. I don't need to get into why, it should be obvious.

No sophisticated investor uses them. I don't know a soul in a real high net worth that has it, I see people maybe under $10,15 MM use them and think they're magic. Maybe $25MM net worth but they are new money and/or dumb money if not both that blindly follow an "advisor". The real HNW don't touch this.

Only people to fight me on this is the ones who sell them.

Your money is literally working in two places at one time. Even though you take a haircut on the fees, you will accumulate more wealth over time. Would you rather have 85% of your money growing at 9% or 100% of your money growing at 6%?

You're right. It's obvious.

Again, a financial advisor. You guys sell this stuff, no one promotes this besides the one selling it.

It still works. Despite what you think.

2 Votes

Quote from @V.G Jason:

Quote from @Pete M.:

Quote from @V.G Jason:

Quote from @Pete M.:

Quote from @V.G Jason:

This all depends on your income, your spending, and your dependents. This can go so many ways.

The last people you want to talk to is a normal, average financial advisor. And anyone that sells you life insurance. Kick their *** to the curb.

Agreed on all except the LI. A purpose-built LI policy can do so much and still enable RE investing--when, like you noted, it suits the needs. Off-the-shelf policy that focuses exclusively on death benefit isn't it, and I see those way too often.

No, life insurance in all forms is an incredibly stupid vehicle to put money in.

Not at all and history shows elsewise, but I don't see this going anywhere than yet another pointless internet argument--so good luck!

Do you not pay your fees up front in any of these? That's the only thing that'd make it a modestly okay investment, otherwise all junk. You're an advisor, and becoming the type I tell folks to stay away from.

The policy owner who leverages the Cash Value of a Maximum over-funded policy WILL STILL make more money over time despite the fees. You don't seem to understand that a maximum over-funded policy is not the usual type of policy most people buy.

@Mike S. is absolutely correct.

1 Vote

Quote from @Mike S.:

Quote from @V.G Jason:

No, life insurance in all forms is an incredibly stupid vehicle to put money in.

Borrowing against it, not from it ;)

That's how you can put your money to work in 2 places at one time.

0 Votes

Quote from @V.G Jason:

This all depends on your income, your spending, and your dependents. This can go so many ways.

The last people you want to talk to is a normal, average financial advisor. And anyone that sells you life insurance. Kick their *** to the curb.

@Kegan Brenner

Leveraging the Cash Value of a Maximum Over-funded life insurance policy is a way to put your money to work in two places at one time. The naysayers don't know what they are talking about. You will make more money over time. It's not a get rich quick trick. It is a methodical approach to investing that allows you to earn a higher combined rate of return (Cash Value plus Real Estate)

1 Vote

@Dan H.

If you are using 100% borrowed money for a deal, it's an infinite rate of return. You have NO money in the deal.

1 Vote

San Diego, California

All Forum Posts by: Thomas Rutkowski

Thomas Rutkowski has started 20 posts and replied 793 times.

Post: Property reserves and personal efund locations

Post: How does a Deferred Sales Trust work?

Post: Universal Life Insurance

Post: Line of equity backed by Whole Life policy

Post: What Are You Choosing For Liquidity

Post: What does diversification look like to you!?

Post: What does diversification look like to you!?

Post: What does diversification look like to you!?

Post: What does diversification look like to you!?

Post: First Time Investment Property Strategy - San Diego

Thomas Rutkowski has started 20 posts and replied 793 times.

Biggerpockets Logo Post: Property reserves and personal efund locations

Biggerpockets Logo Post: How does a Deferred Sales Trust work?

Biggerpockets Logo Post: Universal Life Insurance

Biggerpockets Logo Post: Line of equity backed by Whole Life policy

Biggerpockets Logo Post: What Are You Choosing For Liquidity

Biggerpockets Logo Post: What does diversification look like to you!?

Biggerpockets Logo Post: What does diversification look like to you!?

Biggerpockets Logo Post: What does diversification look like to you!?

Biggerpockets Logo Post: What does diversification look like to you!?

Biggerpockets Logo Post: First Time Investment Property Strategy - San Diego

Post: Property reserves and personal efund locations

Post: How does a Deferred Sales Trust work?

Post: Universal Life Insurance

Post: Line of equity backed by Whole Life policy

Post: What Are You Choosing For Liquidity

Post: What does diversification look like to you!?

Post: What does diversification look like to you!?

Post: What does diversification look like to you!?

Post: What does diversification look like to you!?

Post: First Time Investment Property Strategy - San Diego