Are you a real estate investor that wants to learn how to keep more of what you earn? Seek simplified and easily understandable legal and tax strategies from a uniquely qualified guide to plan your income goals and accumulate wealth.
Today, Clint Coons of Anderson Business Advisors talks to Greg Boots, a licensed attorney, and insurance agent. Also, Greg is a Certified Financial Educator (CFEd®) and Retirement Income Certified Professional (RICP®).
Greg is an authority on business formation, estate planning, and retirement planning strategies. He works with clients nationwide on executive wealth accumulation, non-qualified plans, retirement income planning, and college funding. He has extensive experience working with professional practices on executive compensation and business continuation goals. Also, Greg is active in retirement income planning for federal employees.
Highlights/Topics:
- Life and Death: Insurance is a valuable tool in spite of traditionally designed policies
- Capital Accumulation: Create something that can be actively used for an entire lifetime
- Types of Life Insurance Policies:
- Term: Inexpensive, but no value until death
- Perm: Lifetime benefits with cash growth component
- Index Universal Life (IUL) Policy: Links to upside growth of stock market performance
- Zero Risk: Never lose underlying capital with protection from stock market corrections
- Private Vault: Capital reserve actively utilized any time to get into other investments
- Policy Money: Always access money tax-free by taking out a loan and dictating terms
- Compounding Capital: Take money out and policy continues to grow
- Premium Finance: Borrow policy money to accumulate wealth via super safe funding
Resources
The Private Vault by Greg Boots
Free Consultation and Strategy Session with Greg Boots
Anderson Advisors Tax and Asset Protection Event
Full Episode Transcript
Clint: Welcome, everyone. Hi, it’s Clint Coons here from the Anderson Business Advisors. This is another episode of our weekly podcast.Â
In this episode, what I wanted to talk about is the alternative ways to fund your real estate investing. A lot of times I get questions from people hey, Clint, how do you set up your real estate deals? What are you doing on the backend when it comes to real estate investing to really grow your portfolio? Many times people are shocked to learn that one of my strategies centers around a technique that—wait for it—involves life insurance.Â
I know that is the word that when people hear that, they think, all right, who just popped my birthday balloons? They’re willing to turn out. You do not want to tune out right now, because in this segment, we’re going to be talking with Greg Boots.
Greg Boots is a former partner of ours. He went off to start an insurance company, he’s been killing it with the strategies, and helping real estate investors take their investing to a whole new level. He actually instructed me on the policy that I use today that has allowed me to significantly increase my wealth.Â
Now, again, as I stated, a lot of people have negative connotations about this and there’s so many naysayers out there. I can tell you from firsthand experience this really works. What I want to do is I want to get this information to you.Â
Greg, thanks for coming on. How are things going?
Greg: That’s great, Clint. Yeah, thanks for having me. It’s a phenomenal fit in for investors. Most people don’t know about it. They’ve just been heard that naysay and it’s a phenomenal vehicle.
Clint: You get this all the time. Just going back to when we first started working together, you put together my policy, many people out there would tell me, you don’t want to do this.
Now, where does this mindset come from that insurance isn’t a valuable tool just outside of planning for death?Â
Greg: Yeah, that’s a great question. I hear that all of the time. You have Dave Ramsey and Suze Orman, they’re out there preaching that. It comes down to the fact in regards to those traditionally designed policies. We’ve all been conditioned in regards that we want to pay the least amount for insurance to get the biggest death benefit possible.Â
Those types of policies, in that regard, I agree with Ramsey and Orman. Those traditionally designed policies are horrible growth vehicles because all of your money is going just to sustain that policy.Â
What it is we’re doing is we’re taking a really unique approach where the focus is capital accumulation because we’re creating something we can actively use during our entire lifetime as a funding vehicle, not just the monster death benefit. The only one that ultimately benefits from something like that is our family members. We’re hitting both sides. Wealth accumulation that we can use, benefits us, benefits our family, and in that backend death protection.Â
It all comes down to making sure that it’s properly designed. Quite frankly, working with somebody that knows how to design it because the vast majority of people out there, they have no clue how to do it.
Clint: All right. Well, there’s a lot to unpack there. You’re using terms that I’m familiar with, of course, because I’ve been doing this for so long now. Most people don’t understand it.Â
I mean, when you think of insurance, they think of term insurance where you give money over to the insurance company, then you die, then your family gets paid or the policy lapses, and no one gets paid. You’re talking about wealth accumulation. Let’s talk about that for a moment here and explain how the policy works.
Greg: With the term policy, the reason why so many people gravitate toward it is it’s so inexpensive. It’s pure insurance. Just like our car policy, if we don’t ever get in an accident, yes, we had that protection just in case. We cancel our policy, walk away with nothing. Insurance companies, they have got it down in terms of how long people are going to live.Â
The reason why the term is so inexpensive is that almost 99% of the people outlive that length of time and then you walk away with nothing. What we want to look at is permanent policy—something that we can never outlive. A component to permanent policies, unlike term, no value unless you die. All permanent insurance policies have this cash accumulation, cash growth component to it. What we’re doing is we’re focusing on the growth, not just the death benefit coverage.Â
Term is a fantastic moneymaker for insurance companies because 1%, maybe 1.5%, ever pay. With these policies, not only can you not outlive them, we are getting lifetime benefit from it as well.
Clint: Okay. I originally got started with this. What attracted me to it, I just saw my 401(k) account and my brokerage account that I invest in just getting hammered. You go up and I would be celebrating. Then, it would go down and then I would be wallowing in my drinks. I wanted to get away from the volatility. I saw this as an option for that, initially. That’s why I made that move.Â
When you talk about cash accumulation, maybe describe how the policy works? Give them an example if someone set it up and what are the benefits for them?
Greg: There’s one particular type of policy, it’s called an Indexed Universal Life Policy. We call it an IUL. It grows based upon linking to stock market performance like the S&P 500.Â
The beauty about it is that we’re capturing the upside growth. That when we see that market correction, because they happen, we don’t lose any underlying principle. We’re never having to retrace our steps. We’ve got that excellent growth ability, but without any underlying risk of loss.Â
You brought up the 401(k) which is the classic example. Every day I see commercials for Schwab, Merrill, Fidelity, and they talk about retirement savings. When we’re using our IRAs, our 401(k)s, we’re actually investing.
People are super excited when they go up, but they can absolutely come down. We’re getting phenomenal backend protection. We can still go out, you and I both do it. We invest in real estate, we invest in the stock market. We have these other vehicles that we’re accumulating wealth in.We also have this vault, this policy, that no matter what goes on in the market, no matter what goes on in the economy, we’re never losing any underlying capital in our policy. It’s completely risk free in that regard.
There’s a term. We call it zero is our hero, where the market takes, we get a zero for that particular point in time. That’s the worst case scenario when we see a market correction.
Clint: Yeah, I remember the last time the market corrected itself back in 2009-2010. I looked at my policy and let’s assume it had $200,000 in it. It still had $200,000 two years later.Â
My 401(k) that had that same $200,000, it was valued at maybe $130,000 or $140,000. Then, when the market took off again, that $200,000 started growing for me. That 401(k), it was just lagging behind. I don’t even know if it’s up to the point where it was back in 2007.Â
Yeah, that protection. People often ask me when the market crashes, I was talking to my daughter’s boyfriend, and he asked me about them. There were a couple tough days in the market going well how is your account doing? I said, hell, I don’t care because those things don’t bother me.Â
That’s what you’re saying the benefit of this policy is that if somebody invests into it, they put cash into it. They have no fear that if the market goes down, because as I heard you say, it’s invested in the market. They’re not going to lose. They’re just going to gain.Â
You brought up something else. You said a private vault. Like a bank. What does that mean?
Greg: The reason why we’re creating these, I refer to it as the vault—the private vault—it’s our own capital reserve that we can actively utilize at any point in time. We can access money out of that policy.
This is why it really ties in so well to real estate investors. It becomes our own funding source to get into other types of investments. Especially when we see those market corrections go in, specifically in the real estate market, because it all comes down to numbers.Â
When we’re looking at getting into a particular property, we want to make sure that cash flows properly in terms of the purchase price and a property that didn’t look good prior to any type of market correction in that particular city.
Now, all of a sudden, we see a downturn in the real estate market in that area. Now, that investment starts making sense. We’ve got this pool of money that we can go in there and acquire an investment that six months before might not have made sense from a numbers standpoint.Â
We’re getting the upside growth not only in the policy, but in all of our other investments. When we do see those corrections, it becomes a phenomenal opportunity since we didn’t lose any money in our vault, in our policy, to go in and acquire properties or other investments that are now pennies on the dollar compared to what they were before.
Clint: Yeah. There’s a lot of talk now about the election coming up. If Biden wins, everyone’s predicting the market’s going to crash. I kind of believe in that.Â
If that happens and you’ve got your money in a traditional brokerage account, there’s some risk there. Let’s say I had $300,000 in my brokerage account and I decided I want to go into real estate. You may wake up on November 7, 8, 9, or whatever, that market starts to turn fine. You don’t have $300,000 invested any longer. Now, you only got $200,000. With this type of vehicle, if I put the money in, I would still have that money there for me, the full $300,000.Â
Greg: That’s correct, there’s no underlying risk of loss. It doesn’t matter what goes on in the market. We are only capturing the upswing. Market goes down 37% like it did in 2008. Yeah, you have a 0% for that point in time. I’d rather take a 0% than lose 37%.
Clint: Okay. How do we get the money out of a policy? I always thought with insurance, you have to cancel your policy in order to get whatever money you have out of that.
Greg: Right, that’s a great point. One of the reasons we always want to be able to access this money tax free. There’s this phenomenal section in the Tax Code, Section 7702. The way that we’re accessing that money is we’re taking out a loan and we dictate the terms of the loan.Â
The insurance company doesn’t ask when you’re paying it back, how you’re paying it back. You determine how you’re going to pay it back. For example, a lot of clients out there that are wholesaling, flipping properties, hard money lending, they’re just generally using those funds from their policy, and then they’re paying their policy back when they get paid off on the investment.Â
The last thing that I used my policy for was actually consumer purchase. I purchased a vehicle using the funds for my policy. I’m pretty good at paying it monthly. You know how Christmas time is, funds are tight. I skipped. I didn’t make a payment. Insurance company doesn’t care. I don’t have to worry about anybody coming in and repoing my car.Â
We dictate the terms when we pay it back. What’s really cool is that at some point in time, especially in retirement, we will start borrowing that money because it’s always tax free and never pay it back. All that happens is when we pass away, that outstanding amount that we borrowed, it just gets deducted from the death benefit. I got to enjoy it while I was alive in my retirement years and my wife is still protected when I pass away.
Clint: Okay. If I borrow money, let’s say my policy at $300,000, I want to take $200,000 of that, and go invest in real estate. I take $200,000 out of my policy, I go out, and I buy a house that’s now making me $1800 a month in rental income.Â
Now, taking the $200,000 out, let’s say the market takes off on another terror, buying doesn’t get in, the market just explodes, what does that going to do with my policy because I’ve taken $200,000 out of my policy? I only have $100,000 left in there. I was doing pretty good growth on $300,000, now I only got $100,000. How is that helping me to take the money out?
Greg: That’s a fantastic question. This is what’s so phenomenal about it. There’s nothing else out there like this because we can access that capital via the loan and we’re doing it in a way where that money is still internally in the policy compound. It doesn’t hurt our compounding at all.Â
An example of an investment, I entered into an investment a couple of years ago where I borrowed money out. I was making 9% on the investment, a nice spread there. My policy continued to grow in value by the exact same amount that I borrowed. I didn’t lose any compounding ability whatsoever.Â
The insurance company I borrowed $100,000 out in your scenario, you borrow $200,00 out, you are still getting the growth on that full value, and there is truly nothing else out there like that.Â
If I want to take money out of my brokerage account or borrow for my QRP, that’s great. I can utilize that money but it’s no longer working for me in that other type of account. With this, I can invest externally, get a nice gain, and the money is still working for me in the policy. That’s what makes it so unique. Can’t lose any underlying principle. The fact that I started accessing that money doesn’t hurt any impact whatsoever in regard to my internal compounding.
Clint: When I hear that it’s taken the same amount of money and you’re using it twice, you’re basically doubling, in your example, the return, the same funds. Many people, they’re only going to get 9% on their investment because they don’t see the ability to use that. That’s why I still don’t understand, if you talk about Dave Ramsey and Suze Orman, why they haven’t looked at it from that perspective. They always just are so negative on the insurance.
Greg: It’s because the average agent, 99% of them out there, don’t understand how to design it. Ramsey or Orman will just look at the growth and a policy. It’s not a great growth vehicle.Â
I have a client where I did a review of his existing policy that somebody set up for him. It was going to be 27 years for him to have as much money in there as what he had paid in from a premium. Horrible, horrible, growth.
I don’t mean to sound cynical, but you know what? The reason why I think the policies are structured that way for two reasons. One, the agent doesn’t know how to do it. Secondly, the agent gets commissioned on the death benefit. It’s in their financial interest to get the biggest amount of coverage possible for the least amount of money. Great for the agent, but not great for somebody that wants to actively utilize it.Â
Suze Orman and Dave Ramsey, they’re just looking at that traditional insurance type of design. Also, Dave Ramsey, he points people to a particular company that’s actually owned by his daughter and has an economic interest to do that.
Clint: Yeah. A friend, I know he’d been putting money aside, about $60,000 a year. He’d been doing it for seven years.Then, some real estate opportunities came up. He pulled out about 80% of those funds. He bought these properties and he’s just killing it. He’s making money on the rents and the policy still just gone wild with the market.
You know, I gave the example someone put in $60,000 a year. Assuming that somebody doesn’t have $60,000 a year but they see the potential here and they want to—because they’re worried about the market more—invest in this type of vehicle that you pull out tax free, when you retire, pull out any time, and invest in real estate. I’ve heard there’s another way to fund these. If I didn’t have the cash, somebody said you could borrow or something?
Greg: Yeah, it’s called premium finance. It’s just a game changer. The way that it works is we’re having third party lenders—other banks—because the banks love these. It is a super safe investment for the bank and they’re paying 2/3 of our premium.
It allows our policies to get super funded where we’re only putting in 1/3 of it and we’re only committing to five years. They are amazing wealth accumulation vehicles. Realistically, the younger that you can start something, you don’t have to be 18 years old, but from a time standpoint, the younger you can start, the better in regards to compounding.
I have clients that are doing this at age 60 and it’s all about that utilization of leverage. Not only do we use leverage in regard to accessing money from the policy, from an investment standpoint, now we’re using other people’s money to fund that policy for us. Why would they do it? Because it’s safe for them. We don’t have to put up any assets as collateral. The only collateral on this is the cash value in the policy.
Clint: Well, how do they get paid then? If I went to a lender and said, I want to put up $50,000 a year myself. They said okay, we’ll put up $100,000 then. We’re going to do third. Now, I have $150,000 in this account. It’s growing as the market’s growing. Well, I mean, people just don’t give their money away for free, correct?
Greg: That’s correct. It works a little bit differently than when we are just paying the premiums ourselves. When we’re paying the premiums yourself, we can go in there and start accessing that, and utilizing that money at any point in time.Â
Since the lender is not looking at any other assets as collateral, just the cash value, we don’t have the ability to start borrowing from the policy and tell the lender it is paid off generally in the 15th year. It is a long-term wealth play.
For most of my clients, it’s a phase two type of approach. They already have a policy that they’re actively utilizing. Or, if I have a couple, one spouse will set up an individually funded policy and then the other spouse will set up that premium finance policy. They’re phenomenal from a long-term investment standpoint. I tell you what, from a tax free retirement income standpoint, there is nothing else out there that can even compete with it because of that leverage. It’s all about the leverage.
Clint: Like what you said, just long-term, it’s the policy of paying them back over 15 years. You’re not having to pay the lender back but they get all the benefit now because that money is in the policy for you at that point in time.
Greg: Exactly, and it’s so easy to qualify. I remember you, I, and Toby years and years ago, we were looking at potentially doing a premium finance. The way that it used to be, we’d have to put millions of dollars up as collateral for the loan, and we would have to pay the interest on the loan every year for that 10 years. Now, we’re not having to put up any type of collateral whatsoever. It’s a much more efficient process just because we’re only making a five year commitment in regard to that premium.
Clint: Yeah. Probably, do they run your credit score at all?
Greg: No. The only requirements is that you have to be making $100,000 a year. If you’re married, it’s married filing jointly, they’re looking at both the spouse income. You have to be between the ages of 18 and 65. You have to have just a standard health rate, that’s the only requirement. Again, the younger you are, the less out-of-pocket you’re going for.
I have a client right now. She is 26 and she’s putting in $17,000 a year, less than what she would put in for a 401(k). By the time she is 65, if she started taking that out as a tax free retirement income standpoint, it’s $180,000 a year tax free all the way up through age 90. It’s amazing, especially just from a retirement planning standpoint.Â
Clint: Yeah. That’s in addition to everything else she’s going to have.
Greg: Absolutely. She’s doing other investments as well.
Clint: Well, I know you wrote a book on this stuff. What is the title of your book?
Greg: It’s The Private Vault.
Clint: Private Vault. Okay, so that’s why we have the tie-in back. They are great.Â
I understand that the people that are listening are listening, if they want to get a copy of it, we have a link below that they can go to. They can get a copy of your book. Also, how about a consultation? You gave us a link as well where people can sign up for a strategy session?Â
Greg: For sure. Absolutely. Just for the fact that it’s not a one size fits all. Just like with entities. What we want to talk about is what is it that you’re looking to achieve? What then, based upon that, is the best vehicle for you?Â
At the end of the day, it all comes down to numbers. We want to look at numbers so we can see when we can start accessing the funds, what type of growth projection that we’re having. More than happy, take advantage of the consultation because so many people out there are trying to put that square peg in the round hole. It shouldn’t be approached that way. Let’s find out what you’re wanting to achieve and then work on how to achieve those goals.
Clint: It’s a perfect thing. People are listening to this and they wonder, why should I reach out to you versus someone else? I mean, you’re an attorney. You used to be a partner in Anderson before you went out and started working in insurance. You have integrity. You’ve been doing this for, what is it? 10? 12 years?
Greg: Yeah, it’s been about 10 years. It goes by quick.
Clint: That’s 10 years. You wrote a book on it, so there’s a lot behind it. You understand real estate investors and how to design them. To me, it’s a no-brainer. People should definitely check it out, schedule something with you, click on the link in the notes there. Is there anything else you want to leave?
Greg: You brought up the fact that I’m an attorney and because of that, at the end of the day, it has to work for you. If it doesn’t work, I have no hesitation saying don’t do it because it doesn’t affect whether or not I eat tomorrow, because I do a lot of other things.Â
We want to look at how it integrates from a tax perspective? How does it integrate in regard to your entities? You know, all of the things that Anderson clients are already receiving. It’s this piece making sure it’s all integrated and properly to what it is that they’re doing.
Clint: Awesome. Greg, thanks for taking the time coming on air. I really appreciate it. I hope the listeners got a lot out of it. Be well.
Greg: You too. Take care.
Clint: Thank you for listening to today’s podcast. Show notes for links to everything mentioned in this episode can be found on our website at andersonadvisors.com/podcast.Â
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