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SHOW NOTES FOR EPISODE 457: BANKING ON YOURSELF – UNCONVENTIONAL REAL ESTATE FUNDING STATEGIES
Savy real estate investors are utilizing a little-known investment strategy that allows them to fund their own deals without ever having to use a bank. In this podcast episode, financial planner and member of the Bank On Yourself Organization Sarry Ibrahim shares how real estate investors and business owners can create their own sources of financing while also building safe, predictable, and guaranteed wealth on a tax favored basis.
What You Will Learn
- How you can Bank on Yourself and what that means
- What is cash value and how can you grow it with a Bank on Yourself approach
- How you can use a whole life insurance property to invest in real estate
- Why all whole life policies are not the same and which one works best for real estate investing
- How you can borrow money interest free
- What the five key benefits of the Bank on Yourself investment strategy are
- How you can grow the cash value and death benefit of your life insurance by only paying a one-time premium
About Our Guest
Sarry Ibrahim
Sarry Ibrahim is a financial planner and member of the Bank On Yourself Organization. He helps real estate investors and business owners create their own sources of financing while also building safe, predictable, and guaranteed wealth on a tax favored basis.
More About Sarry
- Got into financial services about 5 years ago
- Started with Allstate insurance as a business consultant helping business owners
- Then, he started his own business and became a Medicare broker, working with Blue Cross, Humana, Cigna to help retirees who were turning 65 and becoming eligible for Medicare plans
- While he was doing that, he had a client ask him to help with a life insurance policy that had cash value
- He had a life insurance license but he wasn’t that familiar, especially as it pertains to cash value, so he told the client he would do some research and get back to him
- He looked on Amazon for books on life insurance and found one called the “Bank on Yourself Revolution” by Pamela Yelin
- The book talks about using cash value whole life insurance to become your own source of financing
- The book has a lot of intricate details about whole life insurance and it intrigued him
- He ended up buying a whole life policy for himself and he went through an 8-week Bank on Yourself professional program where you are tested and you learn how to go through these policies
- He learned how to structure these policies for clients to give them a safe, guaranteed and protected wealth on a tax-favored basis
Whole Life Policies
- Whole life policies have been around for over 200 years
- Whole life insurance policies are a way for people to build cash value in their policy
- It’s also a permanent form of life insurance, whereas term life insurance policies has an end date – 10, 20 or 30 years – then you have to renew the policy
- The only time your whole life policy ends is when you die or if you stop making the payments
The Bank on Yourself Concept
- The “bank on yourself” concept is mainly focused on the utilization of cash value whole life insurance
- It differs from traditional whole life insurance
- There are approximately 1,000 companies in the U.S. that sell whole life insurance but only 3 or 4 can actually structure the policies the bank on yourself way
- It’s also known as “Infinite Banking”
- The policy can only be issued through a “mutual” company, not a “stock-owned” insurance company
- A mutual insurance company gives its dividends back to the policy owners, increasing its cash value
- In a stock-owned insurance company, the dividends go back to its share holders
- The policy also needs to be properly structured
- Paid-up additions rider – allows you to contribute as much or as little as you want from year to year. This is the part that turbo charges the cash value of the policy
- A properly structure whole life policy would have a healthy split between the life insurance part and the cash value part
- It depends on the issuing company and the needs and wants of the policy holder
- A healthy split would be a 50/50 split – for every dollar you put into the policy,
- Half would go to the life insurance part
- Half would go to the cash value part (this part grows even further thru interest and dividends) and you can use the cash value for whatever you want
Creative Ways to Leverage
- Normally, with any life insurance policy, the older you get, the higher your premium is
- However, if you can do a lump sum, one-time premium payment, you can get incredible value
- Sarry shared how one client, in his 70s, who is a real estate investor, sold a property for $400,000 in cash
- He wanted to keep the money liquid and earn interest, so he put the entire amount in a single premium (one-time premium payment) whole life insurance policy
- Immediately, he had…
- Instant cash value balance 0f $375,000
- Death benefit of $580,000
- Now, he could borrow up to 90% of the $375,000 cash value the first year
- The cash value and the death benefit grow in value every year without additional premiums
- The cash value continues to earn interest and dividends
- He doesn’t have to pay taxes on the growth of the policy (5-6%) while the funds are in the policy
- The death benefit is 100% tax free
- By year 3 or 4, your cash value starts to exceed what you put into the policy
- If, in this example, the policy owner wants to borrow $100,000 to purchase a property, he can borrow $100,000 from the insurance company, as a personal loan from the insurance company
- He can control the terms and frequency of the payments
- The insurance company will wire the $100,000 to any bank he wants
- He becomes a cash buyer when he goes to invest in real estate
- His policy continues to grow – the $375,000 is not deducted – he is borrowing against the full cash value
- Let’s say, he pays off the loan in 5 years
- He is paying 5% simple interest on the loan
- The loan may have cost you a total of $120,000 but the the cash value of the policy increased to $130,000 because the growth of the policy exceeds the loan amount paid because you earn compounded interest and you’re borrowing at simple interest
- You can also roll your profits from a real estate transaction back into your paid-up additions rider (cash value) – there are amount limits to how much you can add, though. There is a cost to add more money for the maintenance fee of the policy around 6%
- If you start paying monthly premiums at, say, age 40 and decide to retire at age 65
- You pay the monthly premium for 25 years
- You stop paying your monthly premiums
- You can set up the policy to that it not starts to pay you, at age 65, for 25 years
- For every dollar you paid monthly into the policy, you can now, at age 65, take out $3 for every $1 you monthly paid before TAX FREE
- For example, if you paid $1,000 monthly premium before, when you retire, you can now take $3,000 a month for the next 25 years AND still have the full death benefit
Limits
- Could you buy a one-time premium payment whole life policy for $1 million?
- You can do it as long as you can prove that the death benefit is up to 25 times your annual salary
- For example, if you make $100,000 a year, the maximum death benefit would be $2.5 million
- You can do it as long as you can prove that the death benefit is up to 25 times your annual salary
- Regarding adding to the policy, beyond your regular monthly premium:
- It depends upon the modified endowment contract rules
- For example, Sarry has a policy where he contributes $300 per month
- If he got a $100,000 windfall for some reason, he could not add that amount to his cash value
- The entire policy would become a “taxable vehicle”
- It depends upon the modified endowment contract rules
Buying Multiple Policies
- If people are getting multiple cash influxes, they may choose to open multiple accounts
- There are many types of accounts:
- One-time payment
- 10 years only
- Pay for your entire lifetime
90-Minute Confidential Comprehensive Analysis
- Sarry does a free 90-minute evaluation to analyze the real estate investor’s situation
- Comes back with a Bank on Yourself strategic recommendation
- If they decide to work with him, every six months, they do additional reviews to see if they’re meeting their goals
Biggest Mistake of Real Estate Investors
- Just following what everyone else does
- For example, regarding liquidity, using cash flow or re-financing
- When they have cash, they put it into properties
- They have good relationships with lenders so they can always get low interest access to money by re-financing so they don’t have to sell properties
- Problem is, they are restricted by LTVs and values fluctuate
- You need a good relationship with the bank and where your money “lives”
- But there are many restrictions and may not always get the money you need when you need it
Biggest Benefits of Bank on Yourself Strategies
- Liquidity – You can always get 85-90% of the cash value of your policy
- No Market Volatility – Your money grows, at a consistent rate, regardless of market conditions
- Death Benefit – You always have that and it grows every year
- Tax Benefits – The growth of the policy is tax-deferred. When you do access the money it is as tax-free because it’s viewed as after-tax dollars
- Integration Level – It’s not either or. You don’t have to choose to put my money in insurance or real estate – here you can do both! You can “recycle your money”
Advice for Old Dawgs Looking at Bank on Yourself Strategies for Their Real Estate Investing
- Sarry recommends a “single premium” policy – one-time payment
- With that, you will have an instant death benefit and cash value
- With single premium policies, the underwriting is less strict
- There is flexibility to add more capital into the policy as you earn more capital without the commitments of adding more capital
- Empty nesters who are considering selling their primary homes and downsizing, profits could go into aa single premium policy
Current Business
- With all the uncertainty there is today, Sarry says he never has to worry about a client calling and questioning why their Bank on Yourself account balance is dropping (contrary to investing in the stock market).
- To show all real estate investors the value of thinking like a bank. I want my company to be the go to place to learn what banks do and how to copy their efforts.
Rap-It-Up
- Favorite investing book: Raising Private Capital by Matt Faircloth and Joe Fairless
- Favorite general business book: Mindset by Carol S. Dweck
- Most valuable web site for success (other than your own): Bank on Yourself Website
- Favorite app: Calendy
- Favorite quote: “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it” – Albert Einstein
- If you lost everything – all your assets – and had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? I would use that $1,000 to get my real estate broker license and do rental deals as they are much quicker than real estate sales. I would then use that money to invest in real estate all over again. I would also leverage the connections from the landlords and property managers in which I am helping them with rentals.
How to Reach Sarry
- Website: Financial Asset Protection
- Set-up free consultation
DISCLAIMER: Many of the above strategies take knowledge and have a higher degree of risk. You need to do your research and/or work with someone who is experienced to reduce your risk.
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