All Forum Posts by: Tommy Feraco Jr

It's the old infinite banking scheme from the 80's. Here is the issue, they will over inflate the gains (an insurance agent can input the interest rate to over inflate the policy), they will have you only focus on the non-guaranteed side of the illustration (the side that they over inflated) and will tell you not to worry about the guaranteed side. The issue is this is insurance, so the guarantee is what you are buying.

What is your time horizon on your money? If you are fine socking it away for 10 years before you can get a sizable loan from it, then infinite banking may work for you. If you are thinking take out this policy and in 3 years access the money, well there won't be a a lot of money to access.

As for the rate they will propose on the non-guaranteed side, ask them for a copy of the ACTUAL returns received by a client in the same product for the last 5-10 years. Get that from the actual insurer, 9 times out of 10 on the infinite banking scheme you see they over inflated by about 5%. I had a client bring me a different agencies proposal for the same, they we're proposing that the S&P 500 would increase at a steady 12% rate year over year for 20 years, thus my client would be VERY happy. Well we will all be VERY happy if the S&P returns 12% for 20 years straight, it would be the most prosperous time in the history of the US.

Those are the words of caution, with that being said, I do play a bit of infinite banking on my policies that are now 20 years old, but that's the time horizon you need to make it really work.

100% true. Sad but true.

This is absolutely wrong. The SAD thing, is that there are life insurance agents that don't understand how to properly design policies to meet client needs. As I stated earlier, up to 85% of the premium in a properly designed policy (funded right up to the MEC limit) goes straight to the cash value. I, for example, put $50,000 of premium into a policy each year for 5 years. Remember, you are not borrowing from your policy you are borrowing against its cash value. So when I take a loan and use it to invest in tax liens paying 20%, I am making the spread between 20% and my loan rate (4.4%) AND my cash value is still earning interest/dividends.

Did I use a BS projection? NO. That was last year.

It doesn't matter what the agent projects on the illustration. 12% is complete BS and that agent should be reported to your insurance commission. What matters is what you can do right now.

There are policies out there right now that have 7%+ dividends with loan rates currently at 5%. It doesn't matter if this stays at this level forever. What matters is that if I put money into a policy right now, I will have cash value right now, before one cent of dividends are paid. I can borrow against this cash value at, for example, 5% to invest in real estate notes paying 15%. I'll make 10% on the spread and I may be able to deduct the interest depending on how I structured my business. IF the company pays 7%, then I make a total of 17% on an investment that paid 15%. How do you guys not see that?

If the company didn't pay a 7% dividend and paid 5% instead, I still make 15% and when I factor in the taxes, I still come out ahead.

Finance 101. Its no different from investing with a HELOC.

@Thomas Rutkowski Thank you for your insight into this topic. I did have a question. So, why wouldn't I just continue to utilize the BRRRR method or HELOCs to pull out capital on investment as using it on another property? I am definitely new to this strategy, but I feel that using overfunded life insurance is the same notion as the two strategies mentioned.

I am also asking due to the fact that I am working with an agent now and wanted to learn more about this topic from this platform. I currently have two properties with about 50k in equity that I could BRRRR. So, would it make sense to even use this investment vehicle for my situation?

0 Votes

Quote from @Ryan Kempkens:

@Zackary Thomas just from the way you formed your question I can see you have started your research, great job on that!! You know that the Whole Life policy is not an investment in it's self, it is a vehicle to make your investments from. If you start a properly structured policy at 20 years old your 40 year old self will love you Lol. That said there are a lot of well meaning agents out there that don't understand what they are building for you so make sure you interview them and they know how to build it.

For the purpose your thinking about using this I would not get talked into an IUL. I have sold both and they have their place but not as a banking vehicle. They are sold on their flexibility but if they are not max funded they are not a viable product and the loans will put them in jeopardy. The problem with them is that they are 1 year renewable term life contracts with a cash value. If your cash value is high enough the amount the insurance company has to pay at your death is smaller so the cost of insurance stays low, if you don't over fund or take loans against that cash value the more the insurance company has to pay when you die so the cost of insurance goes up as you get older. So it is actually becomes less flexible because you have to max fund it to keep it enforce in the later years of the policy.

In a Whole Life policy your cost of insurance stays the same. You can adjust the amount of PUA (Paid Up Additions) to make it more flexible. You want to put the least amount possible towards the death benefit as possible and still keep it under the MEC line to keep the tax favored status. How to do that can't really be explained it a post.

If you ever have any questions or need help asking the right questions to your agent or prospective agent feel free to reach out. I have no doubt you will find yourself in a great financial position in life, starting to think about and plan for your life at such a young age!!

Here is a good video that explains the best way to build a policy.

Hey Ryan, first off thank you for going so far in depth on this. I am actually seriously considering this strategy as well at 24. Now thinking in terms of a few years down the road and I borrow against my policy. Is this strategy flexible in terms of "paying myself back"? Also, how does the interest on that loan factor into play? Would I be paying interest back to myself? What is the LTV for how much I can typically borrow against myself? Lastly, what should I be weary of when borrowing against the policy?

Sorry for so many questions but whatever insight you could provide would be greatly appreciated!

1 Vote

Quote from @Michael Warthen:

Hi Tommy,

I have never done one but a realtor I have used before told me to ensure the realtor is there on the first visit or the builders will not offer a commission to the buyer's agent. Please keep us posted how it goes for you, thanks!

Interesting, I wonder if it would be beneficial to have my client sign a buyer rep before I show them any new builds and work with the contractor. Appreciate the help!

0 Votes

Hello All,

Recognizing that there may not be a whole lot of investors around the south-central Missouri area that are on this platform I'll open it up to whoever would like to attend. I have been thinking about starting a meetup for my area (Fort Leonard Wood, Springfield, St. Louis) that would be open to any investors, Realtors, lenders, etc. who would like to come network and discuss topics that revolve around challenges or new strategies taken especially in this current market climate. In addition to this, I plan on having featured guests come and speak about a specialized area where we would all benefit. If this is something that sounds appealing to you, leave a comment, and let's connect!

This probably won't happen in the next month or so, but I would like to build an REI meetup early next year!

Also, feel free to leave a comment on this post if you have any suggestions for what the topic of discussion should be at these meetups!

3 Votes

Saint Louis, Missouri

Hello,

I have a new lead interested in a new home build in my area. I have yet to work with new home builds and the process of going under contract for these in particular. I would assume that it would be a much longer process if the client would prefer to go under contract as that home is in the final stages of construction. I would love to hear any suggestions on what to look for and where I should be committing my due diligence towards!

As always, much appreciated.

0 Votes

Hello,

I am curious to see what your strategies are for getting a new lead to sign a buyer's exclusive agency contract. I have someone new coming to the area and after working with them for a short time they are adamant about not signing. I have explained everything about the contract to them but still no luck. Any advice or suggestions would be greatly appreciated!

0 Votes

@Marcus Auerbach

Thank you for your response!

I definitely agree. Getting finances in order is critical to build that solid foundation for which I look to grow. Like most people I dove into real estate in effort to create a passive income source that would allow me to live the life I want. Right now with only two properties everything is self managed and I plan to keep it that way for as long as I can maintain it with my current W-2.

0 Votes

@Chris Seveney

Thank you very much for your valuable insight. I’m definitely someone who wants to figure everything out overnight but I understand these things take patience. Creating a roadmap is also something that would help organize my goals for the future. I literally ordered traction a day ago and plan to dive into that upon receipt!

In the meantime, i think it would be a good idea to plan and prepare for the next 3-5-10 years down the road!

Again, thank you for your response! It’s much appreciated.

0 Votes

When people talk about scaling and how to scale, the biggest topic that comes from that is creating systems. But many times actually teaching how to scale through a systematic approach once you have two or three properties under your belt is glazed over. I know systems may be different for everyone, but I am curious to know how those of you who have maybe ten to 100 properties; 1) created those systems 2) how those systems have changed as your portfolio has increased 3) how you run (or have someone else run) those properties.

I have closed on my second deal a couple months ago and while the rehab is going to take some time, money, and a lot of sweat, I’d really like to create more of an effective system to scale my portfolio.

Thank you all!

0 Votes

Hello All,

What method has worked the best for you when keeping track of your investment property renovation purchases? Also, do you use the same tool collect and track rent?

My assumption would be to open a bank account with a card linked to it to keep all transactions organized. If anyone does it this way do you mind sharing what bank/platform you use?

Thank you!

2 Votes

All Forum Posts by: Tommy Feraco Jr

Tommy Feraco Jr has started 12 posts and replied 24 times.

Post: Paradigm Life, Infinite Banking, Whole Life Insurance

Post: Whole Life Insurance

Post: Going Under Contract for a New Home Build

Post: South-Central Missouri Investor Meetup!

Post: Going Under Contract for a New Home Build

Post: Getting Buyers Exclusive Agency Contract Signed

Post: Systems to scale and momentum

Post: Systems to scale and momentum

Post: Systems to scale and momentum

Post: The best method to keep track of expenses