Is a HELOC or policy loan better for investing with IBC

There are many reasons to consider not doing business with a commercial bank. But I want to just talk about the fundamentals of having those key levels of control. I'm sure you guys have been speaking to people that they own personal real estate and rental real estate. Many people are in variables and many people have home equity lines of credit and they have personal lines of credit and they've been using these things to help try to accomplish buying more assets. Now the problem is six months ago they had cash flowing real estate. Today they still have cash flowing real estate, except it's negative cash flowing real estate. So what exactly would you place the return on investment for control in your life? Financial control, that is. How about sleepless nights? Are these fun? I don't think so. But what about the most peaceful, easy, joyous, relaxing and refreshing sleep that you've ever had because you have financial control? What kind of rate of return would you place on that? People like to throw around rate of return and it's all over the marketplace. We're hearing it on the Tic Tacs and the, the tweeters and all the different social media platforms. Lots of little tantalizing videos explaining how magical rate of return can be in certain areas. But a lot of people who are promoting and talking about the rate of return you can get on something are not talking about the lack of control you have, and they're not talking about what happens when rate of return all of a sudden disappears and it turns negative. So obviously those are crappy things to talk about. Nobody wants to look at it. But if we're being pragmatic and we're actually thinking about protecting your money in a uncertain environment, being able to put your head on your pillow at night and, and wake up refreshed the next day because you weren't tossing and turning, wondering if there was going to be any money left in your bank account because the bank of Canada hiked the interest rates again. Well, there's a lot of value in the ability to have that peaceful night's sleep. So a question I would have for you is what value would you place on that? Well, I'm joined together by two amazing colleagues of mine. We've got Taran and Jingen here. We're going to flush some of that out. And this really stemmed from a critical question that we've been getting from people recently in client conversations. A lot of folks, especially real estate investors, are finding themselves very attracted to the idea of the infinite banking concept for all of the main reasons that you're probably here listening to this. And as people are discovering and learning more, they're at different stages of their journey. Well, the real estate investor, one of the things that they know and they learn about is the power of leverage using opm. Other people's money. Well, other people's money typically is a third party bank. What we're helping people understand is it doesn't have to be a third party bank. You can also get OPM from the insurance company because you co own them and you now co own the lender. And all that lending activity goes to the books of the insurance company that you co own and they get to share some of that with you. So the profits or the dividends that they return to you on an annual basis, it's a pretty powerful way of doing things financially. But the question keeps coming up, hey, why would I take a policy loan versus say using my home equity line of credit? So I'm here with Tron and Jingjen. We're going to discuss that a little bit more among a few other things that might pop up in our conversation. So I'm going to swing this over to you, Tron, because this question really stemmed from a conversation you had recently. Walk us through how you find these are coming up in conversation and where this is becoming, I guess, more asked.

Yeah, for sure, Richard. So I was having a conversation with one of my close friends and we were just chatting about, you know, the concept of becoming your own banker. He just purchased the book, he was started reading it. So he's asking me a few questions and that's where the question came up. He, he comes from a mindset. He's a business owner, he owns rental properties. So he uses a lot of credit in his day to day activities. And so his question was, hey, like I could just start a line of credit and do the same thing. What is the difference with me doing this through an insurance policy and taking out a policy loan? And I went through the rabbit hole of answering that question and it, it brought out more questions and I think it ended up leading to some confusion. So here we are trying to set the record straight on the difference.

Oh, love it. And now Jingen, you had a very similar conversation. And as a real estate investor yourself, I'm sure maybe even when you started exploring this concept for yourself as a consumer, that might have been a question that was even in your own mind. Would that be a fair statement?

Yeah, that's actually very true. It's actually one of my own question. And also I have lots of clients asking the same question. Which I really resonate with where they are at their mindset. Because people would say, okay, Jen, Jen, I read the book Becoming your own banker. I understand that I cannot have the cake and eat the cake at the same time. I understand that, okay, I either pay up or I gave up. Now I understand I can have my money continue to grow every day. So the question is, okay, I can have my money growing every day and I can still use the home equity line of credit. What's wrong? I'm still doing two things at the same time. Why am I using a policy loan? Right. So this question comes up again, like I can still have my cash value accumulated every single day that give me control, but why not still use the home equity line of credit for that? And my question really is, if you use a policy loan to wipe over all of your HELOC or some part of your heloc, does that take away any of the opportunity that you freed up from that portion of the heloc?

Yeah, very good. And so many things come of this. And this is one thing that pops into my mind is just thinking about at a high level. Let's look at major banks, banks all over the world. Do they do business with one another?

Absolutely, Absolutely.

Do banks lend money to other banks?

100%.

I guess.

In fact, they do it overnight. It's called overnight lending. And you ever heard the expression money follows the sun? So as the sun is rising over in one part of the world, there's business activity and transactions taking place and there's lending that's transitioning. And as other areas of the world open up, as the sun is passing over, it becomes nighttime over here, it's daytime over here, and the money is following the sun. This is something we used to talk about in some of our old events that we used to do live. And there's lending and money in, in motion 24 7. It's happening all the time. Most of the time, as a consumer, we don't see it. We might fundamentally know in the back of our mind that it's happening, but most people never really take the time to think about it happening because it doesn't seem to affect us. I can tell you that it's affecting us. And if you go to the grocery store and you notice that the price of everything's gone up, that's one of the, one of the ways that it's affecting us. But I won't go down that rabbit hole today. Now, money follows the sun. Overnight lending. Banks are lending money to other banks. It's just a method of money movement that's taking place. And so if you owned and controlled your own banking system where you have access, readily available access to capital, can you lend money to another bank or person? The answer is yes. But if you don't want to use your own capital resources and you have access to the resources or the pile of money that's been accumulated by some other banking or lending institution, can you use theirs? The answer is yes. Mm. When you are in the driver's seat of your money. So just imagine now you're in a car and you're in the passenger seat, or you're in the backseat of the car and someone is driving. The car is not doing the things you would want them to do. You're gonna start to coach them and suggest, you know, turn left here. Turn right here. Oh, my God, slow down. Oh, did you see that pedestrian? You're gonna start making commentary about the things that you see. Have you guys ever done that before? Yeah, my wife hates. My wife hates it. I do that all the time. So you're the passenger in that vehicle. Well, in your financial life, when it comes to the banking, most of your financial life, you've been the passenger. Someone else has been in the driver's seat. Does that make sense?

That's a great concept.

Part of the concept of becoming your own banker, the key words are your own is that someone else is no longer the banker. Okay. You're taking back control. So you're getting into the driver's seat. Now, it doesn't mean there might not be some other people, passengers or whatever, you know, nitpicking at you about things going on in life. But you're ultimately the one that gets to control how that car moves around. One of those areas of control can be the decision on whether or not you want to access a pile of money from some third party. Now, if that third party is a bank or a lending institution, you know, those guys have no sense of humor at all. They're not going to let you access that pile of money without paying for it. They're going to say, here's some fees, here's some interest. Oh, and by the way, here's 14 pages of hoops that we want you to jump through acrobatically in order to access our pile of money.

Just 14.

Just. Yeah, there's just 14. 14 pages. I mean, it's. It's small font, though. Toronto. Okay. It's very fine. Oh, yeah, yeah.

Got to bring out the magnifying glass.

Right. And it's Double sided. Okay, so it's actually 28 pages. So you, you have all these hoops you need to jump through. Now if you're listening to this, probability is you've had to jump through some hoops from a financial institution. Now maybe you're a successful business owner, successful real estate investor, you're just hitting your stride. You, you know, you can basically walk in any commercial bank and they look at you like, oh, hello ma', am, sir, can we give you some money? And maybe you can simplify the process of jumping through those hoops. There are people certainly who watch our content that of that nature. Then there's other people who, they hit the wall, the financial wall, especially the real estate investor. The real estate investors will know what I'm talking about when you hit the wall or the banks don't want to give you any money. And then you got to figure out, okay, I need to do a new spreadsheet, I got to show them my debt coverage ratio. And if I can improve my debt coverage ratio, then suddenly it opens up new lenders because they'll lend on my portfolio. And you go through all these again, you're just jumping through hoops. It's just that you don't even realize that they're forcing you into those hoops. They've simply created these barriers of activity that you, you know, you're seeking a real estate coach or you're, you're reading blogs online, you're trying to figure out, how can I go and access more money. Well, when you're well capitalized through something you own and control, what you're doing is you're reducing your dependency, your dependency on the need of that third party capital. And so it doesn't mean that you don't, you might not use them, you could use them. If you want to do, that's your call. That's your prerogative. If you're in the driver's seat of your financial car, you could take the car wherever you want to go. Every once in a while you're going to put some fuel in it, okay? But if you have all this capital building up, let's say an insurance policy, you start incorporating the principles of becoming your own banker. As soon as the lending environment, the financial environment by which you're operating, your financial life, which includes your real estate portfolio, starts to shift and change. And as soon as the banks start to demand more things of you or they want to allow close your line of credit, they want to take this away, they want to take that away. Don't you want to be in a position of financial control where you can go to the insurance company that you co own, fill in one piece of paper, no questions asked, take a big fat pot of money out from the insurance company's general fund and fire all of the other bankers in your life. Now if you don't have that big pot of money built up with the insurance company, you'll never be able to make that decision. So you are perpetually placing yourself deeper and deeper and deeper into the passenger seat of someone else's car. You know, it's like you're adding extra seat belts. You can't even get out of the passenger seat so that you can get into the driver's seat. But if you start setting up the environment that allows you to be in the driver's seat, which is the process of becoming your own banker through the mechanism of the insurance company and the contracts that we work with and we teach people about. At any point in time you don't like what that bank's doing, they make your life difficult. You know, let's say you lose a job or you have now negative cash flowing property so your debt service has gone down into the tank because you're taking extra cash flow out of your pocket to service increasing mortgage costs because the bank of Canada is ratcheting rates up and you can't control the environment. Don't you need to be in a position of well capitalized control?

Absolutely.

Yeah, absolutely.

If I had a soapbox I would stand really tall on it right now. I don't know about you guys.

So Richard, while you are talking, which I really, really resonate with what you share because you know the control is really unmeasurable, right? The control and the choice that you have in your hands. I'm just thinking about analogy. So Teran retired, three of us own a store ourselves. So we continue to grow our business, our store, our grocery store and however we all purchasing groceries from Costco who we do not own. We just continue to shop at different stores, Walmart everywhere other than our store. But if, if the other stores are increasing their prices on their groceries or whatever reason, I mean first off we should always shop in our own store, right? I mean that's a question I want to ask that might grow our business, isn't it? And the other thing is that if we're not shopping in our own store and the other stores are increasing our prices or there are different things, can we still shop in our own store? Do we have that option?

Yeah, that's a great Point Jujun. And if I can add to that, I think what I'm hearing is you want to do both. You can still do both, because the process of becoming your own banker, implementing this, this concept is creating another asset and then hence the term the and asset. So it's not whether you should, you know, just do a HELOC or you should do this. You should do both, because as both of you have said, it's about that control and, and having that option that when times are challenging, when the interest rates are high and the HELOC interest rates are high for you to sustain, you still have that pile of capital that you hopefully created by implementing the process of becoming your own banker.

Yeah, exactly. And, and real estate investors at some point in time in their path of learning about real estate, whether you're an accidental real estate investor or you're a very intentional real estate investors, I think for the most part, the people that we tend to serve and deal with are very intentional. You, they start with one property, you add another one, you add another one. Sooner or later you join a membership group, a networking group, you join, you get a coach, and you're trying to expand and grow your horizons. I mean, we work with people like that all over the country. And some of them are buying in different areas of Canada. Some of them have, are focused on multi family, some on suited houses, some on Airbnbs. We have people buying in United States in different markets. So the methodology or the ability to be a real estate investor, there's so many different ways that you can do it and different markets that you can do it in. These things ebb and they flow, and they ebb and they flow. The strategies by which you can invest in real estate are the same. The markets and the economic fundamentals that surround the success that you might have will change. So what you can control is your knowledge base and understanding of the strategy and your knowledge base and your understanding of maybe a given marketplace. What you can't control is how the, a presidential election, a economic turmoil or, or military strife in another part of the world can have a measurable impact on the marketplace in which you're investing in where that physical real estate is located. These are things that are outside of your control. So again, we come back to what's the rate of return that you would place on control. We can all fill out a spreadsheet, some of us better than others. Tehran is like a spreadsheet ninja. You know, Gingin went, you know, got has like a statistics background. So, I mean, these guys can run circles around me in a spreadsheet. But if we all had the exact same spreadsheet, we plug some numbers in, we're going to get basically the same numbers depending on the variables we insert. So just because it's in a spreadsheet doesn't mean that that's what's actually going to happen. It just looks good on paper. What actually happens is what actually happens. So because you can't control what happens, you need to figure out where are the parts of your life, especially your financial life, where you can enhance and double down on control. I believe that the, you know, mutual ownership of participating dividend whole life insurance policies allows you a very high degree of that level of control. Nelson Nash used to tell a story about traveling. He went to a conference, it was a Mises conference or something like that. Had to do with Oscar Austrian economics. And he was, he loved to travel the world anyway and he went with a number of people and he told this story about being there and waking up in the morning. And of course you wake up in the morning, you go down to like the hotel, like restaurant, having a coffee and of course there's always the, the morning newspaper there. This is of course when people read newspapers. So we're going a few years back, you know, Nelson would flip through the morning newspaper and he liked looking at what was going on in the local environment where he was staying and he would say, oh wow, hey, look at these crazy headlines. Like look at what's going on. The Dow Jones is up or this is the Nikkei. Like whatever stock exchange is, you know, plummeting down and you see these jagged arrows and graphs and of course all the marketing and it's all this fear clickbait material, you know. And Nelson would be sitting there having coffee with someone, he drank a lot of coffee and he'd be like, huh, last night my cash values went up. In other words, it's a very peaceful, stress free way of financial life, especially when you get the banks out of your life. There are many reasons to consider not doing business with a commercial bank. But I want to just talk about the fundamentals of having those key levels of control. So we're in an environment right now where we're recording this in Q4 of 2022. We've now seen, I don't know, four, I think four straight back to back interest rate rises by the bank of Canada. I've been speaking to people, I'm sure you guys have been speaking to people that they own personal real estate and rental real Estate. Many people are in variables, and many people have home equity lines of credit, and they have personal lines of credit. And they've been using these things to help try to accomplish buying more assets. Now, the problem is six months ago they had cash flowing real estate. Today they still have cash flowing real estate, except it's negative cash flowing real estate. They used to have $400 a month coming in. Now they're feeding $400 a month into the property the other way around. Now, Robert Kiyosaki, if anyone's read any of his books, he defined a liability takes money out of your pocket, and an asset is something that puts money into your pocket. So if the real estate's an asset and the interest rates just went up because the financial lever went the other direction, we talk about leverage, everyone talks about the power of leverage, but no one tells you what happens when the lever goes the other way. So right now, people have been buying and buying and buying and buying and buying and buying at the lowest interest rate environment that we've ever seen on planet Earth. And so they had a really good lever to create cash flow. Now the lever is flipping, and now the cash flow is no longer coming in the door, it's walking out the door. That means they have to go and earn more money with their other job, their other business, their other income to feed the property. So the property that was an asset six months ago just became a liability. And we're seeing that happen in rapid format all over the country. So, again, what rate of return would you place on control?

Yeah, I really like that, Richard. Especially nowadays when we talk with real estate investors, a lot of people talking about trigger rate, what point we should switch from variable to fixed. And also there are a lot of people thinking of creative ways of increasing their cash flow. For example, can I get rid of my existing tenants so that I can increase my rent, or should I do an Airbnb so that I can increase my cash flow? Like all those things. And I really, really resonate with that, Richard, is because as a real estate investor myself, my biggest fear for real estate was about the uncontrollable events. Government changing regulation, bank of Canada increase interest rate. Because Robert Kiyosaki, he said, is not about how much money you make, but how much money you keep and how hard it works for you and how many generations you keep it for. So risk management is not about the rate of return. Sometimes it's really about if I can survive during the lower cycle of the economy. I think that's really, really important. And that's also one of the reason that I myself find ibc, the Infinite Banking Concept.

Jing Jin. I love it. And I love that Kiyosaki quote. Now, if you're enjoying this conversation, check out the video that's popping up the screen. Head over the Bankers Vault Channel and continue joining us for the rest of the chat.