Using Infinite Banking to Fund Real Estate Investment
Investing in real estate is a strong way to build wealth and cash flow over the long term. It can even have a generational or legacy aspect to it for your family for years to come.
When you couple real estate investing with your high cash value life insurance policy you could gain even more control and advantages.
Today we’re going to talk about two things – infinite banking using your whole life insurance policy and building a real estate portfolio. Both great wealth building strategies in their own rights – but even better when we smash them together and get even more benefit from them working together.
I’m not going to explain the whole infinite banking strategy in this video – you can click on the many dozens of other videos about infinite banking for Canadians on our channel – they’ll be linked on the side and as suggested videos on whichever platform you’re watching this. But the gist of it is putting a lot of cash into a properly designed whole life policy and then leveraging that money out to invest.
So the insurance acts as a few things – first it’s insurance and provides the protection you, your family and your business needs, then it’s a way to accumulate wealth in a tax advantaged way, it’s also highly liquid for when you need to access that cash to make an investment like into real estate and at the end of the day it provides a tax free and private death benefit payout to your company or to your beneficiaries.
So, with that out of the way let’s talk about how your infinite banking life insurance policy can help you in real estate investing.
I’m going to caveat this by saying something very important – that you must load money into your insurance policy before you use it. This isn’t something you can set up today and use tomorrow unless you’re putting in large premium deposit amounts.
Also, any of the things you’re wanting to use the money for – you must put the money into the policy first – for example if you want to put $1,000,000 into some part of your real estate deal, you will first have to put the million into your policy.
I just want to be very upfront and clear about that because a lot of videos online don’t address this directly.
So – here are some of the Benefits of Using an Infinite Banking policy for Real Estate Investment:
Once the money is loaded up, you have Immediate Capital Access:
The time delays and blockages of traditional lenders can be bypassed. This lets you take quick action on real estate opportunities when they present themselves. When it’s time to cut a cheque, you’re ready and don’t have to wait for approval.
You can have access to bigger lending at the bank with the right types of policies:
This isn’t pure infinite banking per se – because if you stick with the book literally, you’re supposed to hate the banks and never take money from them. But in Canada you must work with banks, especially if you’re borrowing large sums of money.
When you have one of these whole life policies loaded with cash, the banks will generally give you a 100% loan to value ratio or LTV.
And when you do the lending with the bank you are working with either private banking or commercial banking and they lend bigger amounts. So, you’re in a better department at the bank that if you’re just talking to someone at the retail level.
Enhanced Control:
When you’re taking policy loans from the insurance company you have way more control, of your lending and financing terms. The insurance company sets an annual interest rate – but that’s it. They don’t have any sort of repayment schedule that you must stick to. So, you have tons of flexibility on how you pay back the policy loans. This gives you tremendous flexibility and adaptability depending on what you’re trying to do. You have more flexibility for deals.
Tax Advantages:
The growth inside your infinite banking policy is tax deferred – and if you don’t withdraw your money, that tax never happens. So, this is a good way to have your money grow and compound forever. This means that your principle that you’re borrowing against continues to get bigger.
Generally, when you’re borrowing for real estate it’s with a mortgage – and your asset that you’re using for security may or may not be growing in value.
You need the insurance:
Since the Infinite Banking strategy works by using a participating whole life insurance policy, it protects your wealth, your family or your business. You need the insurance anyway and by using this strategy, your insurance can work for you more than as just protection.
Multiplicative Wealth Building:
And the great part about loaning out from your cash value for say down payment is that whatever you borrow doesn’t take away from your cash value, that number is still compounding growth within the policy. So, while you leverage enough to invest, it’s still growing while you’re paying for a property or perhaps renovations before you flip it.
Risks of Using Infinite Banking for Real Estate Investment:
Now of course there are risks to this as with any financial strategy, especially strategies that use leverage.
You will have a Reduction in Death Benefit if you don’t repay the loans.
If you don’t repay the loans, they will eventually be repaid out of the death benefit when you die. So, you want to make sure to either repay the loans while you’re alive or have a plan for the legacy you want to leave your beneficiaries if you want to leave them a certain amount of money.
Risk of Policy Lapse:
This is one of the key risks that you must be aware of. Depending on how the policy is set up and depending on how you take the loans, there could be a risk of policy lapse – which means the policy can’t pay for itself and will lapse or cancel.
To mitigate this, you want to work with a good advisor (like us) and stay in communication with your advisor to make sure your numbers always make sense, and that the policy can handle what you’re trying to do.
Interest Costs:
Again, this is something I feel gets glossed over in a lot of videos on infinite banking that are out there. Yes, you are borrowing money and yes there is interest payable on that. This is a fact and it’s silly that others online try to minimize or hide this.
On the flip side, those “you should never do infinite banking it’s a scam” videos they also harp on this fact that you must pay interest on the loans like it’s a big gotcha. Yes of course you do. It’s a loan and there is interest. That doesn’t mean this is a bad strategy it just means it’s a loan that has interest payable and you need to account for that.
What’s cool about the interest when you borrow from the insurance company is that they only adjust their interest rate annually. It doesn’t fluctuate all the time like a prime rate at a bank. So, if it’s 6% today, it’s 6% for the whole year until they announce next year’s rate. So, you know what you’re getting and there’s some stability that you can count on.
Market Fluctuations:
This is a standard disclaimer anytime you’re borrowing money to invest. The price of your investment can go up and it can go down. So, you must be extra careful when borrowing to invest because you owe that money even if the value of your asset – in this case real estate – goes down.
This can be considered a complex strategy:
I do this all day and have for more than 10 years so this is simple for me now. But setting up one of these policies and then leveraging against it either from the insurance company or a bank can be considered a complex strategy so you should have some financial sophistication.
But really once you get an infinite banking policy set up and you’ve funded it for a couple of years and used the leverage capabilities, you’ll see that it’s actually very simple and straightforward. But this is a legitimate risk that you should consider.
A lot of these risks fall more on the person using the strategy, as the strategy is sound. Using it requires commitment and a decent cashflow to begin with. We do not recommend this strategy for everyone.
Contact Us
At Safe Pacific Financial, we specialize in helping Canadian business owners, incorporated professionals, and investors structure life insurance for maximum wealth protection, tax savings, and business growth.
If you would like to discuss whole life insurance or investments, we’re happy to chat and see if we can be a good fit to work with you. Fill out our contact form and we will get back to you within 24 hours on business days.
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