Finance Rental Property by Becoming Your Own Banker

So just by changing the process, he didn't do anything differently, he didn't work any harder, he just changed the process. He changed where he decided to store that money and how he was going to access capital and he was able to dramatically increase his his return. Where is the money flowing? That's the most important to think about and who the money is being put to work for. So if I'm flowing the money to my own system, the life insurance company that I co own, the money's being put to work for me and my family versus flowing that money and storing it in someone else's bank and giving them use and control over it, they're growing it to profit the shareholders of the bank.

Meet Rich.

Okay, so this is Rich, sharp looking guy. Rich is a 48 year old professional who decided to begin saving $50,000 per year. Now one of his wealth accumulation strategy methods was going to be purchasing real estate. Now a word of caution here. Be mindful that this is a process and the numbers can change. If I decide to save $50,000 per year into my policy and you Decide to save $5,000 into your policy, the process remains exactly the same, the numbers just change. If Sarblo decides to save $100,000 into a policy, the numbers just change, the process remains the same. So it's all about getting started where it works for you. And that's what we're going to do, is work with you to determine how are you structured financially, what are your objectives and will help you create a system that works best for you and your family. But in Rich's case, he's setting aside $50,000 per year so Rich can save his money in someone else's bank, as we know. Or Rich can save his money in his own warehouse which will be his private banking system. So let's help Rich decide which option is preferable for him. So let's take a look at this case study. After two years of saving, Rich finds a rental property to buy. I think we should know this. Who is the one, if this is rental property, who is paying all of the expenses associated with the rental real estate? Well, you're a sharp group, I know you already know it's going to be the tenants. Right now.

Rich has options in terms of how he's going to go about financing this rental property. Rich can use his own cash as a down payment and then mortgage the balance. Or he can use the process of becoming your own banker, the infinite banking concept for Canadians. Let's break it down and see what's best for Rich. So cash down mortgage financing, traditional conventional way of doing it. Let's see what happens. So the purchase price of the home is going to be 300,000. His down payment is going to be 60,000, leaving a mortgage of 240. Gross rent in this example is going to be $2,500 a month. And the mortgage payment is $1,021 per month, which means the annual income is going to be.

17,007, 48 after expenses. So that gives him a gross cash on cash return of 29.58%. I would say in most situations that's pretty darn good. That's the conventional way, good for rich way to go. Well, let's see what happens if he decides to implement the process of becoming your own banker and finance the property that way. So first he is going to deposit instead of into someone else's bank, he's going to deposit $50,000 per year into a permanent participating dividend paying whole life policy as premium. So you can save in someone else's bank or you can save into the policy. And year two, the cash value of the policy has grown to $84,147. So he has more than enough than he needs for his down payment. And that cash value, as we know we've already covered that, it's increasing and growing every single day. The Death benefit is $913,060, which is far more than the outstanding mortgage balance. The available loan is.

$75,732. And again the purchase price is 300,000. We have a down payment of 60,000 at an annual simple interest. Key thing there, simple interest rate by the life insurance company of 6.2%. So the interest that would have accumulated assuming no loan, no policy loans are being paid back would be $3,720. The death benefit is collateralized, uses collateral. So the policy loan or the policy loan, the not the property. Right. So it's not the property that's used as collateral, it's the death benefit. Right. So God forbid something happens to Rich, the death benefit would actually wipe out the policy loan. So that loan doesn't necessarily have to be paid back. It can be paid back by the death benefit. Is that real income coming out or does that need to be paid off? If we're using it as a retirement income example, then you would draw that money out until the time of your passing and the death benefit would wipe out the policy loan. Or it could. That's an option. Same with Rich. If he borrows Money from the policy, and God forbid he becomes an angel. The death benefit is being used as collateral and it would wipe out the policy loan, death benefit or policy loan balance, and the rest would flow to the family tax free so that they could use it to do what they need to do to take care of things. Rich controls the repayment schedule on the policy loan, and his 84147 continues to grow daily without interruption. The mortgage is 240, as we know, same rent, same mortgage payment, and then the annual income is 17,748, the same as the existing, existing the previous example where Rich can warehouse or excuse me, where can Rich warehouse this money? So think about that for a moment. That cash is flowing in. Let's assume he's not using it for living. Let's assume he's being able to manage those expenses through his rent, his personal income or what have you. He can store that money back in the policy system as a policy loan repayment and just replenish that pool and store it in his own private system while he waits to track down his next opportunity. Now, his gross cash on cash return in this example has now went from the 28.5, I think it was 29.5 to 477.1. So just by changing the process, he didn't do anything differently. He didn't work any harder. He just changed the process. He changed where he decided to store that money and how he was going to access capital, and he was able to dramatically increase his return. So again, radically enhancing your investment returns by implementing the process of becoming your own banker. The total cash value in year three has now risen to 140,151. So he has a lot more access to capital, and that's up $56,000. What else can Rich do with more access to capital? Well, obviously, if he has more access to capital, he can go ahead. And if he wanted to, he could accelerate the mortgage paid out on that existing rental property, or he could likely just go and look for more opportunities to do private lending or acquire more rental real estate and expand his portfolio even further. And just as an added bonus, the death benefit at this point has actually increased by over $1 million, up about 91,000 bucks. So Rich's objectives didn't change. What did he want to do? He wanted to access rental real estate. All he did, as I said earlier, is change the process. He used to achie the objective. Where is the money flowing? That's the most important to think about. And who the money is being put to work for. So if I'm flowing the money to my own system, the life insurance company that I co own, the money is being put to work for me and my family versus flowing that money and storing it in someone else's bank and giving them use and control over it. They're growing it to profit the shareholders of the bank. So who's getting the money and who's the money being put to work for? Is there any downside to becoming your own banker or to Rich becoming his own banker? In this example? Absolutely not. So that was a really quick example of what's possible if you're going to go ahead and finance rental properties through the process of becoming your own banker versus doing it the conventional way. We're not changing anything other than the process that we're using to achieve the objectives.