Real Estate Underground

Unlocking Financial Freedom: Mark Willis's Whole Life Insurance & 'Buy, Borrow, Die' Strategy

• Ed Mathews • Season 4 • Episode 132

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Unlock the secrets to financial freedom with our special guest, Mark Willis, a certified financial planner and best-selling author. Discover how Mark transformed his life from being overwhelmed with debt to mastering innovative financial strategies that can empower you too. In this engaging episode, we promise to reveal how whole life insurance policies can be your ticket to greater financial autonomy, serving as personal lines of credit without the red tape of traditional banking. Mark's compelling insights illustrate how these tools can supercharge your real estate investments and create additional income streams for retirement.

Join us as we explore the "buy, borrow, die" tax strategy and how similar methods can be within reach for everyday investors using whole life insurance. Mark sheds light on the Bank on Yourself strategy, emphasizing its potential to provide financial security when conventional banks might not. With expert guidance, avoid pitfalls and discover the potential impact on your credit and retirement strategies. Mark also shares resources—including a free book—to help you on your journey to financial independence. Whether you're a seasoned investor or just starting, this episode offers invaluable advice to help you navigate the path to financial security.

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Speaker 1:

Greetings and salutations. Real Estate Undergrounders. It is Ed Matthews with the Real Estate Underground. Thank you so much for joining us again today. Today with me is Mark Willis. Now, mark is a certified financial planner. He's actually a three-time best-selling author and the owner of Lake Growth Financial Services, which is a financial firm that's part of Lake Growth Financial Services, a financial firm out of Chicago, one of my favorite places in the world. Mark is also a host of a podcast, not your Average Financial Podcast. So, mark, welcome to the show and thanks for your time today. Thanks, ed. Thanks for having me on. It's a pleasure. It's a pleasure. So let's start with the podcast. So, for folks that haven't listened to your podcast yet, why don't you talk about who you are and what you do for a living? Haven't?

Speaker 2:

listened to your podcast, yet why don't you talk about who you are and what you do? For a little bit Sure, yeah. So, strangely, I've stumbled into becoming a certified financial planner. It was a long journey not finding this. When I first entered the adult scene, I was in debt up to my eyeballs. So we graduated in 2008, had no plan to pay off the debt, and so my wife and I were struggling just to make ends meet. We stumbled across some strategies that changed our lives. It changed our family tree, and we wanted to start sharing that strategy with others.

Speaker 2:

I get the great privilege now as a CFP, to work with business owners, real estate investors, even NFL Super Bowl champions, ed, but those people I work with are just trying to find more certainty, a little more agency in their life, control over their decisions. I just worked with a young couple, young in the mid-40s. They wanted some more control over the financing options they needed for their real estate, and they were sick and tired of having to kiss the ring of the banker every time they went in to buy another property. And so we work with folks to help them in becoming their own source of financing so they can fire the banker and become more in control and bank on themselves.

Speaker 1:

Yeah, so your client who is the Super Bowl champion? Obviously he didn't play for the Bears, right? He played for the Patriots, or maybe yeah I'm not.

Speaker 2:

He'd be pretty old if he was working for the bears?

Speaker 1:

yeah, he'd be, yeah, he'd be he'd be my age actually yeah that's right. Yeah, 1985 would be older, that's right so in terms of yeah, sorry, I couldn't help myself, but I'm here, I'm based here in new england, so we've had it pretty good for at least the last 20 years. Last five years have been a little skinny, but that's's okay, hey. So in terms of alternate, finance.

Speaker 1:

I'm always looking for opportunities to I'm not going to say fire my banker, but if I needed them less, that would be okay. Right, and we've had multiple guests on talking about different strategies, and my understanding is that what you're bringing to the table is a little bit different than whole life or, using what's the term, infinite banking type of approaches. Why don't you tell me a little bit about that?

Speaker 2:

Sure, yeah, I was surprised to find out that insurance contracts and real estate contracts have a lot in common. In essence, they're both contracts with a multifamily deal. You think you own the place because you can put your hand on the bricks and you can walk into the main lobby, but you really only have a contract If you don't have a contract on that property. All you really have is squatters rights, right? Whoever's got the bigger shotgun is going to own that property. If you don't have a contract, you got nothing. Same is true with insurance.

Speaker 2:

Insurance is a contract, and that's actually the bedrock of all of human civilization. In fact, that's really in my opinion. There's a little deep. We'll get back to practical here in a second, but in many ways, the contract symbolizes our picture of a bigger future. Think about that for a minute. It symbolizes our picture for a bigger future, and handshaking with each other through trust, through a contract, is one of the best ways humans have worked together on big projects. Everything from building the pyramids to paying off my student loans it's all a contract at the end of the day. So in essence, that's what we use.

Speaker 2:

Insurance contracts can be used in conjunction with your real estate portfolio. Now a lot of folks are like what the heck does insurance have to do with banking? Everything, as it turns out, you can use, if it's properly structured and that's a big asterisk right there. We can go back over that if you want. If it's properly structured, these policies, these whole life insurance policies, if they're dividend paying, if they're from a mutual life insurance company, if they are non-direct recognition in terms of their loans, that's a mouthful. So we just call those bank-on-yourself type policies for short. If it's properly structured, you can use and access the cash and the policy as a, in essence, a line of credit to yourself and then use it for all the major expenses, purchases, rehab projects that you might have in your real estate life and in fact then the policy is yours to enjoy as another stream of income in retirement as well.

Speaker 2:

All of this is done outside of the typical banking system. There's no loan approval process. They don't check your credit, they don't even ask you what you need the money for, ed. Literally it's two questions how much money do you want? Where do you want us to send it? And the money's in their bank account in three to five days. I had a guy just recently. He pulled out. He's an investor down in Texas. He pulled out $500,000 from three or four policies that he had and he got it in three days. Now show me a banker that's willing to do that, yeah.

Speaker 1:

So, in terms of the value, how are life insurance policies like the one you're talking about here? How are they valued? Valued? Tell me more. How do you create the asset right? Obviously, you're paying a premium and that premium is going towards some the insurance policy. It's not worth half a million dollars today. Um, you know, in terms of borrowing power, there's a time frame where you have to create that value. So I'm assuming that's premium based. Are there other?

Speaker 2:

ways.

Speaker 2:

Yeah, the word is premium, you're right. So when you put money into a bank account, how do you value your bank account? You deposit money in there. That's just the word they use deposit. When you buy Apple stock, you're investing in Apple through purchasing shares. When you buy a life insurance contract, you're just adding the funds through what's called premium. That's just the fancy word for how they get the money in there.

Speaker 2:

Now what's interesting is, once it's in there, what's the money doing? And that's actually a key concept my clients and I work through together. When I have one-on-one meetings with folks, A large chunk of our conversation at some point revolves around function. Like, I don't care what you call the money, call it a savings account, call it a 401k, call it real estate, call it an annuity, I don't care what you call it whole life insurance what is it doing for you? Is it working the way you want it to work? So once the premium dollars go into the policy, what happens next? In this case, yes, you could have a large chunk of money within two to four weeks of starting that contract back in your bank account for your next real estate deal.

Speaker 2:

I'll give you a quick story. I had a guy. He lives very close to the full house Okay, that's cool. And he wanted to rehab one of those properties that he lives in out there and so he pulled money out of his brokerage account, dropped in about $800,000 into his whole life policy and he had about 750, 800,000 almost ready to go within about three or four weeks after starting the policy. So he had almost all of his money right away that he could then use to rehab and fix up that project.

Speaker 2:

Meanwhile and this is a big cool thing when you borrow against a life insurance policy, if it's properly structured, the policy will continue to earn interest and grow as if you had not touched the money. So in his case he had dropped in 800 grand. He pulled out let's I can't remember exactly, it was somewhere around 700, 750, something like that. He pulled out right away. Even his policy was still earning interest on the entire cash value, even the capital he had borrowed out to go fix up the property. So not only now does he have his policy growing for him, but he now has liquid cash that he can use to renovate and increase the equity share and valuation of that property. In essence, his money's doing two things at once, and I can't find any. As a certified financial planner, I cannot find anything else in the universe that can do, where your money can do two things at once with any kind of guarantees.

Speaker 1:

Yeah, so when he sold that $750,000 out of his brokerage account. Obviously he's paying capital gains on that as well. And then moving that, is there any tax advantage way to move money from one asset class?

Speaker 2:

to the other. There's two things that I would say. In his case he had inherited it, so there was a step up in basis, so he actually had no capital gains. So that's great for him, good for him for being born into the right genetics. But for most people, yes, you're going to have a capital gains. Like I had a guy who sold a real estate deal, put money from the proceeds of that property into a policy. Now he had capital gains on that real estate deal too. So what are we going to do? Here's an interesting strategy.

Speaker 2:

A lot of our clients do this. Let's say per chance, that you owed $50,000 of capital gains taxes. Okay, so then you take the money from the property, sale the equity that you sold your real estate, you put it into the life insurance contract, and where could we possibly come up with $50,000 to pay our property or our capital gains taxes or our property taxes or income taxes? Yeah, a lot of our clients use the policy to make major purchases or expenses in a much more effective and efficient way. You know your capital gains taxes could come out of the policy. You borrow from the policy to pay your capital gains taxes and then smartly repay your loan to yourself over a reasonable period of time, and so who sets the terms of the loan?

Speaker 1:

Obviously you're borrowing basically against yourself. So when you say over a period of time, who sets that time?

Speaker 2:

Yeah, in this case the insurance company has no say in how fast or even if you repay that loan during your lifetime. No one except you are your own. You are your own banker, yeah, okay. So what's the recourse then? It's literally a non-recourse loan. But why would the insurance company do this? Some people ask. If you never paid off that loan, ed and let's say I took a loan yesterday and I died today, my family would get the entire death benefit minus the loan balance, right? So the insurance company, they know they're getting paid back someday. We're all mere mortals here. So they know they're getting paid back. Unfortunately, unfortunately, much to my chagrin. Right, that's right, man. I would say keep that in mind. Don't just pull money out and go to Vegas with the policy loan.

Speaker 1:

But it all on rent but it all on rent.

Speaker 2:

Put it onto a real estate deal and what do you do? You pass. God forbid you pass away.

Speaker 1:

the next day your family would get the net death benefit plus your brand new rental property Got it, and then they would get a stepped up basis, if there was any, between acquisition and when I shuffle off my mortal coil. Okay, all right, so then? So how is this different from? I don't have a lot of experience with this, but I'm curious. I do have friends that have borrowed against their own stock portfolio instead, and I know that there. So actually, I'm not going to say what I know. I believe there are differences, but I'm curious. Given you're the expert, I'll let you answer what the differences are.

Speaker 2:

Yeah, we've done several podcasts on this, if folks want to hear on the Not your Average Financial podcast. So, comparing this to other ways to get loans 401k loans, margin loans, home equity lines of credit all three of those are similar but, I think, fail in many ways. We probably don't have time to go into all of those. I'd be happy to come back, ed if you want, yeah, that's fine.

Speaker 1:

I'm more curious about the broker.

Speaker 2:

Let's go back to the brokerage. Sure, sure, yeah. So if you wanted to borrow against your brokerage, what would that take? You'd have to get approved, wouldn't you? And then there's certainly going to be collateral assigned. You've got to. Your shares are now going to be held in a form of escrow, you might say, or collateralization, and if those shares lose value, what do they call that? Oh yeah, a margin call. Yeah, yeah, those suck big time.

Speaker 2:

Now, when are we most likely going to get a margin call? When times are good or bad, bad, bad. When are we most likely going to need cash? When it's bad, during bad times? Yeah. When are we most likely going to need cash? When it's bad, during bad times? Yeah, then are we most likely going to be able to sell our real estate for a fair price to make good on that margin call again, during a crisis when times are bad. And who's setting the terms of repayment? Certainly the, not you. When it's a margin, it's going to be the brokerage house or whatever. So, in essence, you are no longer in control.

Speaker 2:

And the advantage here and this is laid out by a ProPublica tax report they actually I feel like it was a crime, but they released 25 of the wealthiest billionaires tax returns. Now, I think that's a shame that they did that, but anyway, they revealed a lot of the tax strategies. You can look this up. It was about a year ago. Everyone from Mark Zuckerberg to Carl Icahn to Elon Musk, michael Bloomberg a lot of their tax returns show something called buy, borrow, die baked into the strategy. Are you familiar with this strategy? I think I know what it is, but I'll let you explain it.

Speaker 2:

Okay, so, very briefly, you buy assets. Warren Buffett does this. Everybody, who's anybody seems to use this as their go-to strategy. Step one you buy assets that don't produce an income. That's crucial. It cannot produce an income, otherwise you're going to be taxed on that income. Step two borrow against those assets and live on that for your lifestyle. So, guys, remember, loans are not considered income by the IRS. So your income is now tax-free. So you can borrow against your highly appreciated Facebook stock if your name is Mark Zuckerberg, and then finally die and there's a step-up in basis and your family receives that money tax-free. So buy, borrow, die. Now no one likes the last step, but until then, it's a great strategy, right? So that last moment, yeah, but even if you've just done a lifetime of tax-free living and you can even leave it to your family tax-free.

Speaker 2:

Here's where life insurance really comes into play. If your name is not mark zuckerberg or elon musk, you could still do the buy borrow die. Here's how. Buy the whole life policy. It doesn't produce an income per se, so it's not taxed not taxing you every year, right? The brokerage account might if you sold the stock, or a savings account would if you earn any interest, or rental property would if you have renters in there. Then you borrow against the life insurance, which is, again, is not considered income by the IRS. Now, certainly you could use that rent, you could use that loan from the life insurance to buy your groceries, but you could also use it to buy your rental properties or anything else you want. And then, step three when you die, the death benefit on a life insurance policy is income tax free. So we just figured out how to do buy borrow die.

Speaker 2:

Even if you're making 50 grand a year or whatever you're just starting out in life 50 grand a year or whatever You're just starting out in life what if every family made this a centerpiece or even a part of their overall portfolio, ed? What would change about the direction of this country, about how real estate is managed around, how tax strategies are implemented. If every American, or at least 10% of America let's just say 10% of America fired their banker, what would happen to the credit card industry? What would happen to the retirement industry of the big houses out there the Fidelity's, the Charles Schwab's, things like that? What would happen to the stress level of Americans if they knew that at least a portion of their life savings was growing on a guaranteed basis and they could always access it tax-free? It just gives me goosebumps just thinking about it.

Speaker 1:

Yeah, it certainly would eliminate credit card debt for sure, right, sure. Why would you borrow at 12%, 13%, with a top end that is, in my opinion, 20%, 24% plus? Why would you do that if you can simply invest in a policy of this type Interesting?

Speaker 2:

Okay. Now I always want to bring up too this is not just a sweet deal without any consideration. There's costs to the insurance. There are certainly ways you can mess this up. I'd say the biggest problem with this strategy is the engineering and also the management of it. Even a sweet sports car you could wreck if you didn't design it or manage it well. Or poured power steering fluid where the oil should go. If you don't manage that thing, you could wreck if you didn't design it or manage it well. Or poured power steering fluid where the oil should go. If you don't manage that thing, you can wreck that thing. And if it's engineered poorly, it could be a problem for you for life. So what?

Speaker 1:

does that team?

Speaker 2:

look like. That's the key piece. If it's not designed properly, these whole life policies can grow a lot more slowly. They can lose a lot of the features we've talked about, like borrowing, and it still grows. That's not a given in this world. There's a thousand life insurance companies and insurance companies in this country. Maybe two dozen, maybe a dozen of them are designing policies that are the way we've talked about on this episode. So you got to find, if you work with me, great, I'm shameless plug here. I'd be honored to work with folks on how to set these up.

Speaker 2:

We are again a certified financial planner. But even if you don't work with me, as long as you're working with a bank-on-yourself professional, that is the gold standard. It's the only certification in the industry. A bank-on-yourself professional has gone through the authorization and certification to design these things the correct way. It's like an airplane pilot. You don't want to just get onto any old airplane. You don't want to get into an elevator until you've seen there's a certification on the little lacquer right. So, similar with this strategy. You want to make sure you're working with a bank on yourself professional and I'm one of 200, so I'm great to happy to chat with folks. I can help you if you'd like to talk about it. If not, make sure you're working with the right folks and I'd be honored to introduce you to them as well.

Speaker 1:

Thank you, I appreciate that. That's very generous and I appreciate the caveat Then. Okay, so let's move on to the final five. So let's talk about your purpose. I'm curious what gets you out of bed on Monday morning?

Speaker 2:

I am interested in purpose. I feel like the reaching of potential is probably the number one thing that keeps me moving forward. Potential like a rocket ship on a launch pad is incredible, but if that rocket ship just sat there and rusted it would be a shame. I think potential is such a powerful but dangerous word. It feels great when you're 10 years old to say that kid has such potential, but if that word is written on your gravestone he had such potential, wow, wow, yeah, that's a bone shaker right there. So, yes, my purpose is to actualize my potential and to serve my fellow man and leave the world a better place. Listening out there.

Speaker 1:

We've all had mentors at least the fortunate ones have had mentors and so I'm curious about the best advice you've ever gotten from a mentor, and who was that person for you?

Speaker 2:

Yeah, learning that you're already in the banking business was a big eye opener, and that came from Nelson Nash, the gentleman who helped mentor me, and he, and Pamela Yellen, introduced me to the concepts that we've talked about on today's episode that you're already in the banking business. You're just sitting on the wrong side of the desk. Sit on the right side of the banker's desk and you'll win by default.

Speaker 1:

Okay, All right. So in terms of hey look, we're human, right, the perfection is something to shoot for, although unattainable. What's the biggest mistake you've ever made and how did you recover?

Speaker 2:

This is. There's so many man I'm married. It's basically every afternoon there's something I can learn. I'm like yeah, I'm gonna ask you to continue that thought process.

Speaker 1:

Yeah, cause getting married wasn't one of those mistakes.

Speaker 2:

No, yeah, no, it's. It's just a reminder, a constant reminder of your frailty, always to be improved. I always say someone told me the other day that marriage doesn't make you happy. It's supposed to make you holy. And it's true. You get past your own. You find your own insecurities and mistakes in your marriage. No, absolutely the biggest mistake. I would say this is going to sound strange, but following Dave Ramsey's advice, to pay cash, to pay cash for everything, paying cash is not the answer. When you pay cash, you're losing that money, certainly, but you're also losing all that money could have grown to over your lifetime had you not bought the car or the investment property or the ice cream cone. Opportunity cost is the biggest mistake of my young life. I was throwing money into the hole of my student loans until I found out how Bank on Yourself could let the money grow compounding and still have access to it at the same time. So I've had a lot of life mistakes, but that's a good financial one for this show, yeah, good.

Speaker 1:

I'm also curious about leaders, and executives tend to be readers, and so I'm curious about the book that is on your either physical or virtual nightstand, sure, and who you pay attention to these days.

Speaker 2:

Two really quick ones. I've got Money Possessions and Eternity. Oh yeah, randy Alcorn Great book. I'm just getting started on it, though, but I've loved every second of it and I just gave me that oh cool, right on, yeah, interesting. And then this one here is called Always we Begin Again. Tiny little book, probably 50 pages. Tiny little book, but so many great little poems book probably 50 pages. Tiny little book, but so many great little poems, aphorisms, reminders that even if you screw up yesterday, now's another chance to light the fuse under the rocket. Right on, that's awesome.

Speaker 1:

And in terms of success, what does success mean to you?

Speaker 2:

Okay. So yeah, there's a lot there. I think, really, the best thing I can say is it's movement in the right direction. And Will Rogers said even if you're on the right track, you'll get run over if you just sit there. So success is just overcoming your last mistake. That's what balance is too. It's just over-correcting your last mistake and moving toward again hitting that potential marker wherever you're going. Excellent.

Speaker 1:

Mark, I've really enjoyed this conversation and you are a wealth of information, so thank you. I'm curious if, when you are not teaching people how to bank on themselves and all the other things that you do, what do you do for fun? How do you spend your time?

Speaker 2:

Yeah, it's. I'm in dad duty a lot so I'm out doing right now. It's Halloween as we're recording this, so we're about to get ready for some trick or treating and all that fun stuff. Amusement parks right now are a big deal for the family, but when it's just me and it's me time, it's going to be down at my gym doing some pushing something heavy Just makes me feel like I'm getting something good done. Good, good, lift a race and things like that Right on.

Speaker 1:

That's awesome. Yeah, it's funny. My uncle had asked what hobby do you, what are your hobbies? And they he and my aunt had decided not to have kids and so I said see those two little girls over there. Those are my hobbies, I dance and softball and swimming and all that other stuff. And now they're, they're full grown, super satisfying.

Speaker 2:

Yeah, that's amazing.

Speaker 1:

Literally the best thing you'll ever do. So if people want to learn more about Bank on Yourself, you or your service or your company, what's the best way to get ahold?

Speaker 2:

of you. Thank you the having a big pile of cash where you can access it for any reason, even if banks stop lending Unbelievable advantage over the competitors or the other landlords and real estate investors. I can help with that. We work with clients in all 50 states and around the world. Even you can go to kickstartwithmarkcom. That's kickstartwithmarkcom, and we are offering a free copy of my book how to fire your real estate banker and and that book is available If you go to kickstartwithmarkcom.

Speaker 1:

Excellent. Mark Willis, thank you so much for your time today. It's really good to see you, my friend, and we'll talk soon. Thank you.

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