How To Invest A Lump Sum Into Real Estate With Life Insurance- Jerry Fetta
Last week I was able to help a client of mine set up a life insurance policy that he will store a lump sum of $150,000 into and then use for real estate. I thought this was an awesome way to illustrate not only how we should store money for future use, but also how to use life insurance as that vehicle. You see, too many people save too little money, too late and expect to get rich investing regardless. Additionally, many people have no strategy with their investments. It is done from the hip and based on shiny object syndrome. Today I will show you how to transfer a lump sum into life insurance and use it to cash flow with real estate investments so that you can take advantage of the leverage gained through personal banking with life insurance.
Step #1 involves you earning lots of money, fast. The reality is, any real estate deal worth looking at will require at least $100,000. Preferably more than that, but you might find a unicorn deal that makes sense at that number. If you’re the average American saving 5% or less of their income, it will take you decades to save $100,000. To avoid waiting this long, you’ll need to substantially increase your income. This step is unavoidable.
Next, you will need to save 40% or more of your income. This number comes from the top 1% of the wealth for more than the last century. Anyone who says “saving is for losers” either does not understand what saving money actually means, or they do not have any money themselves and they are making sense of it. You save money to store it for investing. You will need certain dollar thresholds to enter investments and until you reach those thresholds you’ll have to save money to get there.
This plan is seemingly boring and uneventful, which is true. The wealthy are great at falling in love with “boring” until it becomes extremely profitable. Nobody said you have to be looking at deals all the time and doing new and exciting things at every corner. The best plans are consistent and that’s how they win. Keep stacking money and keep earning money and keep stacking money and keep earning money. That’s it.
Let’s say you’re like my client who now has diligently saved $150,000. You can do 2 things.
#1: Transfer the money from the bank into a real estate deal and begin earning passive income.
#2: Transfer the money to a life insurance policy and then transfer from the life insurance policy to the real estate deal.
With option number 1 you begin with greater liquidity and that is really the only advantage. You weren’t earning much interest on the money anyways and what little interest you were earning you will lose out on the earning potential of as soon as you transfer the money into real estate. Rightfully so right? Banks don’t pay interest on money that isn’t there in the account. But at least you’re earning cash flow.
With option number 2 you lose about 7% of your liquidity up front, but you gain it back almost immediately. That’s the downside. The upside is that you will earn a 6-8% dividend rather than the measly .10% in the bank. When you transfer the funds to the real estate deal, the life insurance company will keep paying you the dividends like the transfer never happened. So you’ll be earning a rate of return inside your life insurance while simultaneously earning a rate of return with the real estate. You’ll also avoid taxes on your dividends via the policy loan option (where you borrow against your policy and pay your policy interest as a loan rather than a withdrawal so that the IRS cannot tax you).
The result? You did the same real estate deal either way, but on one hand you’re earning cash flow only and on the other hand, you’re earning cash flow and tax-free dividends simultaneously. The question isn’t whether or not you should use life insurance, it’s what will your next deal be because you’ll have more money sooner with this plan.
This is a program I offer to my clients called Wealth Creation Banking. It includes 3 hours of 1 on 1 coaching, a custom Wealth Creation Formula, a 9 book reading list on monetary policy, taxes, and savings strategies, and a weekly coaching call with a Wealth Creation Coach at Wealth DynamX. If you’re interested in learning more about this strategy, click here!
Own Your Potential,