Case Study: FIVE Property Purchases - Real Estate Investors & WLI

Okay, real estate investor case study number 2. So this case study will be very similar to that of the first case study in the sense that we have a 35-year-old male funding the same $50,000 per year for not 5 years but 30 years this time. You may remember the comparison in the first video we're going to pull that up here again in a second. But because we're paying more into the policy or we're going to buy more property too. So we're going to look at purchasing $100,000 property in year 3, $150,000 year 10, $250,000 year 15, then $300,000 in year 20 and $500,000 in year 30 accumulating over time. Now of course depending on my situation I may want to move faster than this or slower. These are just meant to be examples on how to use it for real estate but more so. And you'll notice this, you likely noticed it in the first video, how the policy mechanics actually function. Right from a policy design, loan standpoint, is my money restored when I pay it back, paying interest only, all of that fun stuff. So let's get into it. So case study number 1, we looked at the example on the left. They're both the same policy on the same individual, same company, all that good stuff. One, I just elected to fund longer. After the fact, I don't have to commit. I could decide to start with this policy and then life happens and I got to stop after 5 years. Or I start with a 5-year plan and things go really, really well and I keep paying into it. Now before we progress on to the loan scenario, important item I'd like to touch on here is $50,000 for 30 years is a commitment. Right? $50,000 for 30 years, that's a long time to pay in. Am I locked into the $50,000 every single year? No, because here we stopped it in 5 years. But the $50,000 figure, can I adjust that if I want to? Absolutely! The policies are designed and again this is in our other programs, but of that $50,000, the actual base premium in this example is as low as this particular insurance company will allow. We set it at $5,000. The reason why is that generated the maximum cash value short-term and long-term on the present dividend rate and based on the guaranteed values. We have a term rider in here as well. The term cost we can get the exact, we estimate right around $1,000 in this example. And then everything else we are funneling into PUA's, paid-up additions, to accelerate the cash value. Okay, so year 5, break even. This right here, most of our content on our channel on this, because it's what I did when we designed policies for corporations, this is the most attractive part to me at least in cash value life insurance. That moment where people see, wait a minute, I can have 85% to 90% of my payment in cash value in the first year, which may allow me to start leveraging the policy to use for real estate right away and not have to wait forever to build the values up. That's the attractive area. How do I capitalize it so I can use it and not have to wait forever to see my money come back to work for me? Let's take a look here. So first thing we will look at, just like the 5-year fund, you've got the growth option on the left, 50 for 30 years. There we go, $1,500,000 in, a little over $3,000,000 in cash. Death benefits appreciated quite nicely as well. Here's what I want to look at. So this example is going to demonstrate paying the interest only, $100,000 loan. If you saw the first case study, identical here. What the cash value drops to and what the death benefit drops to. Anytime I take a loan out, I continue to receive dividends on my full cash value as if I never touched it in the first place. Meaning, that dividend, I'll give it this way, credited to funds and cash value and the outstanding loan. How the insurance company does that? Just like a piece of property, if the fair market value appraises or appreciates by 5% every single year, I get that appreciation on the entire home value. And if I have a mortgage outstanding against it, the loan interest on that mortgage goes to the bank with a lender. Same thing here, 5% goes to the insurance company. And if I decide to leverage it to get a 3% rate with a collateral loan, then that 3% goes to the lender. Doesn't matter. But I will continue to get the same compounding effect on my cash value. Keeps moving forward for me but I want to make sure I account for the loan interest. So here, we're paying the loan interest out of pocket every year. Then we take out a $150,000 loan. So, because I've paid the loan interest out of pocket each year, what's happened to my loan balance? It's not compounding because I'm covering the interest expense. Got some discipline. Same thing when I take out a $250,000 loan. My loan balance is $500,000. Now what's happening, I'm covering the loan interest out of pocket and I'm paying the $50,000 in each year. So at this point in time, by year 15, I should say year 16, the net out of pocket is $75,000. Now the anticipation is I've taken out $500,000 and popped it in real estate. Is that producing more than the $25,000 interest payments? And if I'm leveraging this via a collateral loan, then maybe my interest expense is closer to $15,000 or whatever it might be. That's also potentially tax deductible. Direct policy loans and loan interest is typically not deductible. That's another reason I like bringing up the collateral loans as an option. Same thing here, we're pulling out loans. Here's what I want to bring some attention to. Let's look at year 20 where our loan balance is now $800,000 and the loan interest payments are $40,000. When that loan balance is $800,000, if I die the next day, my net payout is $4,200,000. Versus without the loan, it was just over $5,000,000. An exact $800,000 difference. So in answering that question, how and why does my money continue to remain at work for me? That compounding is not interrupted. Well really the answer is, the death benefits collateralized. That's the main reason. And you've got the loan interest expense as well. That goes to the company which does help offset the interest they pay from the insurance carrier's perspective, if you're borrowing directly from the policy. Down here, pull out another $500,000 loan. $1,300,000 in loans, that's my loan balance. Now cash value is $1,700,000. Here's the thing though, and we're definitely going to elaborate on these case studies in future videos, because I'm sure questions are coming up. I have questions, or not questions, things I'd like to see is, you know, I've paid in for 30 years $50,000 per year. That's $1,500,000. I borrowed out $1,300,000. So that's $200,000 in payments, technically that's in the policy, and I've got $1,700,000 in cash value. Don't worry I'm taking it to the next step. I also made these loan interest payments out-of-pocket all the way through. That needs to be accounted for in my net out-of-pocket payment. So we'll certainly be sure to do that in future videos. We've actually got a video, it's entitled, I believe it's entitled, does it make sense to pay PUA's or repay a loan? Where we go through a full case study on that. In this case focusing on the real estate, this individual likely has done very well. Right where he's got $1,300,000 he's taken out in policy loans to acquire real estate. Likely the real estate is appreciating in value and producing him much more than the loan interest, which is exactly what we want. And then we just demonstrate the loan interest payments indefinitely. Now let's pay it back. Repayment option 1, here we go. So what we're going to do here, is just pay the loan back at $30,000 per year. That's it. So here's our growth sample. When we pay money in let it sit and grow. Same loans $100,000, $150,000, $250,000, so on and so on. Loan interest, here we go. In purple represents the loan interest we cover out-of-pocket. So each year at the end of each year when that loan interest is due, this is assuming I'm paying money out-of-pocket, perhaps the income that was produced from the real estate I purchased and paying the loan interest. And throwing another $30,000 at the loan balance, the last year I pay off $10,000 to clear it. Here's what I want to touch on. And that $30,000 if you say, hey that's unrealistic make it $10,000 you can do that and stretch it longer. We can bounce the payments up and down. A lot of things we can do with this model. When you take the loan out, death benefits collateralized, dollar-for-dollar reduction. When it's repaid, cash value and death benefit is 100% restored to exactly what it would have been as if I never touched it in the first place. This is where life insurance is attractive. This is what you should every single time request to see. Very often real estate investors are attracted to life insurance and the focus just becomes cash value growth. What it looks like we focus on that a lot. But if our plan is to execute the policy, yes, maximizing the growth in my opinion is the most important thing to do. Provides more capital so you can then use the policy. But seeing it in action, meaning the last example we just looked at was paying interest only. This example shows paying the loans off. We've got a handful of studies that demonstrate what if life happens and I can't pay anything back? Maybe I don't have any plans to pay it back. What does that look like? Very, very important to see that up front. This way we don't have any surprises. I should say that way we don't have any ill surprises. A good surprise, I like. Bad surprise, no. We don't want to get those phone calls. All right, so I'm just going to zip to the end here. So we're taking out loans, repaying them, the last loan $500,000. You know what, to be fair actually I should go back up. What I did in this example, so as we take these additional policy loans $150,000, $250,000, $300,000, for simplicity we just assumed paying the loan, the loan balance, covering the loan interest expense each year. Let me try and make this a little bit more clear. Interest, you'll see that match the column to the left. Whatever the interest is I'm paying it out of pocket. Then I'm throwing $30,000 every single year at the principal balance. Which by the way, if I ever needed or wanted access to it, I've got this pile of cash value over here. But I'm gradually repaying it at $30,000 per year and then as opportunities present themselves I'm pulling money out for the opportunity. And there we go. And I know this is a lot going on, if you like the analytical stuff. But here's something to look at, to try and get to the point, simplicity. $400,000 outstanding in loans, death benefit, cash value. What is it compared to this guy? Dollar for dollar reduction, $400,000 every single time. That's the beauty of it. Let's zip down to the end. Now we're talking legacy planning in this case. So when the loans are paid year 50, if I just paid money in and let it sit and grow, accumulate over time. $7,300,000 in cash value and almost $9,000,000 in death benefit. It's income tax-free to my beneficiaries. There's the legacy planning. When you hear these wealthy families and individuals leaving huge legacies to their families, you multiply this, add a couple of zeros. But we can do the same thing all depending on our circumstances. But again, that's if we just let it sit and grow. If I want the long-term legacy play, but I want to use my money too because that's ultimately how I'm going to grow my other assets, which just enhance all of these figures, make them bigger. Well, what do those values look like when you compare them? Identical. Cash value and death benefit is fully restored to exactly what it would have been as if I never touched it in the first place. Again, no lost opportunity cost. That is the beauty of it. One last case study, same policy. All we did here was demonstrate the loan balance is being paid off very quickly. So what you'll notice here, there's the $100,000 loan, collateralized death benefit when it's repaid, cash value death benefit, fully restored to what it would have been otherwise. Keeps on compounding, no lost opportunity cost. This is for the individual that would like to see the loans fully repaid before demonstrating a new loan. The last example just showed a systematic $30,000. The prior example just showed interest only. We did not have any no loan repayments in this example. We've done that in several past case studies, which we certainly can add more if you'd like to see them. So as always, I hope this helps. More to come in future case studies. We're going to be adding more layers onto these in future case studies, specifically with a net out of pocket, factoring in how much I've paid in, how much I actually have in cash value. That way I can see, hey, is this too good to be true? Or do I have more money in cash value relative to what I paid in? So hope you had fun with this one. I did. We'll talk to you soon. Hey guys, Steve Parisi here. If you enjoyed the content you just saw, please subscribe, like, and hit the notification bell for future videos. If you'd like more information or to see some custom policies for yourself, feel free to call or email our offices at the contact information below.