What is the “Bank on Yourself” concept and how does it help real estate investors? In this episode, Sarry Ibrahim and I talk about how he helps high net worth individuals, real estate investors, business owners, and retirees grow and protect their wealth predictably and safely, as well as how to become your own source of financing! Sarry is a financial consultant and the Founder of Financial Asset Protection.
If you are looking to learn more about leveraging your money, Sarry has everything you need for you to reach your desired destination. You’re going to want to tune in and hear what he says in this episode of The Real Estate Rundown.
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Sarry Ibrahim: Bank On Yourself
You’re going to want to tune into the next episode of the Real Estate Rundown because I have a really special guest on the show. That’s going to be talking about how you can leverage your money, how you can protect your assets, how you can do all of this and be your own bank. You’re going to want to figure that out. You’re going to want to tune in when I’ve got Sarry Ibrahim on the show. We’re going to get to those very detailed things that are going to show you a new way and a new take on infinite banking and how you could make that your money as well as protect your assets. You guys are going to want to tune in to the Real Estate Rundown.
Welcome back to the Real Estate Rundown. I’ve got Sarry Ibrahim. I’m super excited about what we’re going to learn from him because he helps high-net-worth individuals, real estate investors and business owners retire and grow their wealth. Sarry, tell us a little bit about yourself and how you got to be doing what you’re doing, where you’re at in the world.
Shannon, thank you so much for having me on. I appreciate it. I’m glad to be here. I started with more of an insurance background. I worked at a few companies like Allstate and Blue Cross Blue Shield. More on the insurance side. I work with a lot of business owners. I came across this concept after reading the book, The Bank On Yourself Revolution by Pamela Yellen. The book talks about the strategy to bank on yourself strategy. I think you’ve had a couple of guests on your show, Mark Willis as one of them. Talking about bank on yourself. This opened up my eyes to the strategy.
Mostly from the business owner’s perspective. As we’re learning more about it and meeting more people, we’ve learned that it can go hand in hand with real estate. Like you’ve mentioned, there are benefits to it, asset protection, tax-deferred growth, liquidity and other things like that. That drew me in. I started a company called Financial Asset Protection. We’re a financial services firm. We specialize in with the bank on yourself concept. Specifically, for real estate investors and business owners. Glad to be here and glad to share more about bank on yourself.
It’s great to see somebody that named their business in a very articulate kind of way. If you think about an Uber. It’s an Uber. You don’t know what an Uber is. There’s a lot of these companies. Lyft, I understand what a Lyft is but your company is very appropriately named. It’s almost like you called the Dave Matthews Band to have them help you name it. I’m kidding. When you’re talking about the bank on yourself concept and you’re talking about how people can create liquidity as well as protection. What are those two things that go hand in hand that are special to your formula?
I think that those are common problems for a lot of real estate investors. It’s protecting assets. Behind the tax, there’s a lot of benefits to being a real estate investor. Understanding bank on yourself is more from the standpoint of looking at the problems first and seeing if we could use this strategy as a solution to those problems. Somewhat common problems are, we mentioned asset protection, taxes, also interest too if we’re thinking about it, Shannon. Let’s say that, for example, you’re more on the active real estate investing side. You’re leveraging loans, bank loans. The downside to that is, the interest goes to the lenders. Over time, these lenders are almost like your indirect partners.
They’re getting from the work that you’re doing. They’re getting interest from that over the years. That could be a potential problem. A loss of opportunity costs on your side. Also, it’s not always guaranteed that you’re going to get funding from banks. Bank on yourself, also known as infinite banking. It helps address where you can become your own source of financing while protecting your assets and growing wealth tax-deferred. As the policy is increasing in value and earning dividends and compound interest, that’s done tax-deferred. You’re not having to pay tax on that growth.
One of the things that we do in our syndications is we’ve got the Infinite Banking program involved in our succession plans. Each project is buying insurance, contributing to my personal program and having a piece of that insurance for each project. If there’s anything that ever happens, that’s all part of our succession plan but why waste the money? Why buy a single-use policy that’s good for this project. We are putting that toward my product and my policy. I’m getting the benefit of that but the project is getting the same amount or more insurance and knowing that it’s always in place. We use that. It’s a little bit of a hybrid but it protects our investors. Should we have an event that I would be really upset if my life insurance is necessary because that means I’m not here anymore? It’s not even on my top 100 lists of things to do.
The most common problem for a lot of real estate investors is protecting assets.
To see if my life insurance is any good. Most people don’t think that, but they don’t plan to have the ability for that. What they normally do, they’ve got a policy that does nothing more than provide a Death benefit, which you don’t want to get. You’re not around to collect. What is the underlying policy that we’re getting and how are we implementing that concept? That people can take advantage of if they’re working with someone like yourself. What are we getting? Are we getting a VUL Policy? Is it a UL Policy? What’s the premise of starting that policy?
In basic terms, it’s dividend-paying whole life insurance. As you mentioned, we’re not doing this for life insurance. We’re doing this also for the living benefits while we’re still alive for the cash benefits. We’re also using it for multiple functions. For example, you have a whole life insurance policy. You have life insurance in it, and you have cash value. Almost a savings account component inside of it. That is cash, it’s liquid. You can withdraw that money or you could borrow against it. You could leverage it. You could pretty much use it as a weapon or a tool for different areas such as taxes, asset protection. For example, if you’re a limited partner, you could borrow against it and then invest in deals as a limited partner. If you’re an active investor, you could use that for your deals alongside other sources of funding. There are many different ways to do it. Many different creative things that a lot of people do.
You mentioned you’re doing it already within your projects and within your company. There’s a lot of different ways to use it. Clients always ask like, “I’m a real estate investor. What should I do?” It starts with your objectives first, like what is it that you want to accomplish? Somebody who is a limited partner and all they want to do is be a limited partner in real estate deals. It’s going to be completely different than somebody who’s a general partner or running the deals. It’s going to be two different scenarios, policies, funding. Amongst all those, it’s going to be different. It starts with identifying your objectives, where you’re at now, where you want to go, what are your goals? Also, your financial self-awareness of where you are now and where you want to get to? We use a policy or sometimes numerous policies to help bridge you to those goals.
Life insurance is one of those things that nobody that’s alive wants to talk about. Honestly, dead people don’t talk, at least not to me. The reality is, most people don’t want to deal with it but when they realize that it can be an investment tool, that it can be something that gets you to benefit other than in the care of your loved ones after you’re gone, it can become a tool. Why is it so hard for people to want to talk about this? Is it because they only feel that it’s something that will benefit them when they’re dead or benefit their heirs at that point because it’s no benefit to them? Is it just an uncomfortable conversation?
A lot of people don’t talk about this. There’s a couple of reasons. Number one, people don’t know about it. People assume that life insurance is just life insurance, hence the title, life insurance. That’s all it is. It’s kind of like death insurance. Where if you pass away your beneficiaries, get money. That’s how most people look at it as you started digging deeper into the cash value and all the tax benefits and asset protection. I think that people still have a barrier behind it because of their paradigms. What they were taught growing up, in college, in working for different companies for different people, it’s stocks and you put money in the stock market, you buy real estate actively, you have bonds, use a bank account for everything. All these different things are drilled in people’s minds and some of those are.
Those are conventional ways that we all apply. Infinite banking or bank on yourself, requires a different way of thinking, a mindset shift. Where you’re shifting from a consumer mindset or a borrow mindset to a bank mindset, where you’re becoming the banker. Literally, where you’re becoming the source of your own financing and you’re thinking like a bank. You’re thinking, how do I take control of my capital? How do I keep it in my pocket? Even when I’m using it, how do I keep it with me? How do I bring it into the future with me? How do I compound it over time uninterrupted? How do I protect it from unnecessary risks? Like lawsuits, liens, judgments and all the other things like that. That’s what we’re doing with infinite banking or bank hunters. We’re thinking about how to think like a bank.
Correct me if I’m wrong. To articulate this a different way, I don’t know if the people think about this as a consumer mindset but they think about it as a debtor’s mindset. People that are, I would say, recreational investors. They own their home and think their home is an asset. They’re debtors. As they look at that and they go, “I can’t wait to hurry up and pay this off.” Instead of being investors and real estate professionals where we look at debt and we go, “Debt is leverage.” It is a tool in our toolbox and we’re looking to make a percentage on top of that debt.
We look at debt as something that it’s not necessarily good or bad. Bad debt is too much of it. Good debt is the right amount of it that allows you to control a larger asset, allows you to create cashflow and allows you to create other things. When people shift that and go, “This is another way for me to obtain a leverage position from myself to myself. I can then make sure that I get that loan,” because you’d hate that if you turned yourself down for a loan out of your life insurance. That’d be tragic. You can leverage that where you are in control of that.
Now, instead of being a debtor’s mentality, you’re looking at it as somebody that has additional tools in your toolbox to get leverage. You’re able to come from a place of, I can get leverage over here. I can get leveraged from the bank. I have different sources of leverage. To say this another way, I can look at an equity stack where I’ve got bank debt. I’ve got equity from my life insurance and for myself. Who’s the ultimate guarantor? It’s me personally and the life insurance protects that. You pull all that together. That’s a mindset shift that a lot of people don’t wrap their heads around.
There’s a big difference between good debt and bad debt. I think conventional wisdom teaches us that like all debt is bad. You want to eliminate all debt. As you said, you have a mortgage, you want to pay it down as soon as possible. Actually, an investor mindset would say, “If I pay off my mortgage. I’m going to tie up all this capital into the property I live in,” which is arguably not an asset because you’re using other factors. At the same time, we could leverage that money in there, especially with low interest rates. We could leverage that capital through lines of credit or other forms and use that and deploy that in other places we could take good debt and then make something out of it. Not just eliminate all debt. This is exactly what is like a bank on yourself involved. It involves leveraging debt. Shannon, many people are like, “Why is it that I have to borrow money from my life insurance policy? It doesn’t make any sense. I’m putting money into a policy and then I have to take out a loan to use my money?” Exactly, you do and you want to take out a loan.
The reason why you want to take out a loan is because taking out a loan against an asset is the only way that an asset can grow uninterrupted. Meaning if you had, for example, $500,000 in cash value in your policy and you borrow $100,000 to use that to be a limited partner or to be an active investor. That $500,000, your original cash value is uninterrupted. You didn’t subtract from the principal. You borrowed from a different source, the insurance company. That’s a different source. You borrowed from them, leveraging your cashflow. That’s definitely a good example of good debt. You’re using it to be in two places at the same time.
Let’s use it to be in three places at the same time. Let’s say that I have a house and I’ve got $300,000 in equity in my home. I want to buy $200,000 in gold. Walk me through how I would do that in an infinite banking program where my only source of cash is in my home, in my equity. What would I do to buy that $150,000 in gold?
Starting a policy starts with identifying your objectives, where you are now, and where you want to go.
If you had $300,000 equity. Let’s just say you took out $220,000 in cash. You put two $220 into a whole life policy, then you can borrow $200,000 from that and then pay by the gold.
When I did that, how much whole life would I be able to get? What kind of protection would I be affording my family essentially in this adding a step to the process? I could have taken the equity out of my home and I could have known about the gold but there’s no safety net for my family.
Depending on one’s age and their health and other things like that, you can get probably $220,000 premiums in a single premium case. You could probably get about $400,000 rough estimate and life insurance.
This is not telling you that he will give you that much if you show up with the money. This is a scenario that we’re creating. It’s all about all kinds of stuff. Sarry is not going to give anybody this kind of policy. We’d have to underwrite it, obviously. We want to throw that disclaimer out there for both of us. The reality is when you think about that if you’ve got $300,000 an equity in your home and you want to wind up with a hard asset because you’re afraid of inflation. That’s great. When I put that money in that policy, I now have a life insurance policy. If I die, its going to pay off the equity in my home. I’m going to be ahead of that game but when I take that money out and go over here and buy the gold. What happens to my policy?
Your policy keeps growing as if you never touched it.
How does that happen?
It happens because when you took out that $200,000, you never subtracted from it. You borrowed from the insurance company. The insurance company said, “We’re going to give you a personal loan,” and the only leverage they have is your whole life policy. That’s it. There’s no credit check. There’s no credit score involved. They don’t report it to the credit bureaus. You don’t have to put up any other collateral except for the policy itself. They’re going to give you a personal loan and you could pay that loan back whenever you want. You can pay it back $500 a month, $1,000 a month whenever you want. You could pay it back in lump sums. That’s where you’re becoming your banker. You’re controlling the payback terms. You still have your home and the life insurance policy without setting a loan and now you have the gold. You’ve created a hedge in multiple ways, whether it’s changing in gold prices, in market prices, in the line of credit that you have taken out. This would be a good scenario if somebody still had other sources of income to pay down some of those loans. I think this will be a feasible way.
I was talking about just two assets. You added a third one. This is why I made a show called Thinking Like A Bank. We are thinking about how to do these things because this is all banks do. They’re connecting people and leveraging. When you go to a bank and you borrow $100,000 from them. It’s not like they have a vault and they’re going to take $100,000 out of that vault and give it to you and now they’re down $100,000. No, they’re going to leverage other depositors, investors, other banks to loan them money and loan that out to you at a higher interest rate and keep a spread in between.
If you had $150,000 in gold, you could get a loan on that too and put it back in the policy. This can become like a hall of mirrors. You can see that yourself. We’re not suggesting or advocating that at all. I use the scenario of an asset that is fairly illiquid. We are in an inflationary market. A lot of people looking at that going, I want security. This is the funny thing about loans that I appreciate in inflationary markets. If I borrow $200,000 and things are inflating, prices going up. I get to pay back in tomorrow’s inflated dollars. As this happens, if I’m putting that in my life insurance policy, I’ve got a fixed amount I owe, a fixed rate that I owe it at. I’ve locked myself in, but then I can buy something that is a hedge against inflation that is likely going to grow at or above the inflationary markers. If I wanted to, I could go and buy a house with that. Leverage that house and use the cashflow on that house to repay my life insurance. That’s the typical way that an investor would do that, is that correct?
Yes, in other words, we’re never keeping money in a bank account, not doing anything. I think that’s the worst place to put money, in a bank account, not doing anything for you. As inflation is going up, the cost of things is rising and your money is in the bank. It’s going down every day because your purchasing power is going down. We want to exchange that money for assets and liquidity. As you said, we don’t want to park it and things that are inflating or increasing in value. We also want to be able to use capital out of that because, like you said, when we’re borrowing, we’re paying with tomorrow’s inflated dollars.
Which reminds me, I need to make a transfer because I have some sitting in the bank that I need to put to work. When we do this, we’ve taken our cash and we’ve put it into this investment vehicle that is protecting our heirs. It’s not protecting us from death. In fact, too much insurance could ensure that somebody takes you out. It’s protecting you as protecting your heirs and it’s providing an investment vehicle. What happens with the interest that we pay on that loan?
The interest you’re paying on the loan goes to the insurance company since you’re borrowing their money. That’s one of the sources of revenue for the insurance company. The clever part is, when we own this insurance policy, we are also a mutual owner of the insurance company. If it’s something from a mutual life insurance company, you’re also a mutual owner. This means, as they’re collecting interest from all the other people, they’re collecting premium dollars, investing that into private loans, the bond market. At the end of the year, the insurance companies are going to have profits.
Conventional wisdom teaches us that all debt is bad, but there’s a big difference between good and bad debt.
They distribute those profits back to the policy owners via dividends. Although dividends are not guaranteed, we only work with insurance companies that have a proven track record of paying dividends for over a hundred years in a row, including during market downtrends, of The Great Depression, the 2008 crash, at the beginning of COVID. They’re still paying out dividends. That’s because it’s not based on market performance. It’s based on the insurance company’s performance. To answer your original question, we’re paying interest back to the insurance company. While that is happening, our cash value is earning interest in dividends as if we didn’t touch it. It’s appreciating. It’s growing. In other words, it grows, whether you take out a loan or not.
I appreciate the fact that you’re working with companies that have done it for 100 years. Those companies that have only paid dividends out for 99 years, they’re like total schmucks. They don’t know anything. You’re right. You do need to be working with reputable companies. What is the tax advantage behind all of this? There’s obviously a tax advantage in this. It’s why the rich do it. The rich are that way because they’ve learned how to, not only use their capital in the best way, but they’ve also figured out how to pay the least taxes. What’s the tax advantage with all of this?
The rich are good with keeping the tax in the families who are Boomer’s generations. I’ll start with the first one. The first one is, the growth of the cash value grows tax-deferred. Meaning, if this year I have $100,000 in cash value and the next year I have $105,000 cash value. I don’t pay taxes on that growth. This means that I could keep through numerous policies and loans. Everything that I’m doing, the growth of it, won’t impact my income taxes. I don’t have to claim that as income taxes or capital gains for that matter, because I’m not taking anything out of it.
That’s one advantage of it. Tax-deferred growth while it’s inside your policy. The second is that when you pass away the life insurance amount that goes to your family is income tax-free or beneficiaries’ income-tax-free. This is how you can go through multi-generational wealth without paying taxes. You pass the wealth onto the next generation without paying income taxes. You could still be exposed to state taxes for high-net-worth individuals. I got to check the numbers. I think it’s like $13.5 million. If it’s above that then you might be exposed to state taxes but other than that, income tax-free. That’s important.
The third layer, in most situations, is when you take out loans and withdrawals, even if it is above cost basis, above what you put into it like a gain in the value, you don’t pay tax on that in most situations. In every situation, the policy is not a modified endowment contract. If it is a modified endowment contract, then you could be subject to taxes on loans and withdrawals. There’s even a fourth step. This is tricky. Don’t quote me on this one. I’m not a CPA. Talk to a CPA, to your tax attorney about this. This could be that if you borrow from the policy and you’re using it for business purposes, you could, in some situations right off the taxes you’re using for the policy. That is a bit of the fourth advantage and the fourth tax advantage.
I can say that I like 3 of the 4. The second one, I don’t care for so much. The fact that you got to die for your heirs to get money. That whole part involves me in a way that I don’t want to be involved in, but I will be at some point. This is the thing, just to put this out there if I put in $100,000 and that thing is going to make, let’s say, it just makes 5% a year. That policy has now grown over twenty years to $200,000 or it’d be more than that. I can borrow out the $200,000 and I can deploy that $200,000. I know I wouldn’t be able to borrow it all but we borrow a majority of it.
I can borrow out more than I originally put in. I now have access to more money than I put in without paying taxes on it. Whereas if I would’ve taken that money and deployed that. Let’s say that I bought rental property. That rental property appreciated and I got the income off of that. I’m going to pay taxes on the income. When I sell the house, I’m going to pay taxes on the house. I’m going to tax it every year. If I use that money out and I borrow that money out at, after an appreciated amount. I get to use those funds without having to pay taxes on them to use them. When I go by the house and I loaned the money from myself to myself, then I go and I sell the house and I pay back that loan, I can show myself a high interest rate, couldn’t I?
You could. There are ways to do that with the proper guidance.
Let’s just say that I did this for two years, that I made $200,000 on a $100,000 and I charged myself 10% interest. That would mean, that the whole $20,000 I profited would go back into my life insurance policy. I wouldn’t pay taxes on that, would I?
I’ve now got $120,000 in my life insurance policy that is now growing faster. I’m able to use that as a retirement account. Unlike a retirement account, if something happens to me, my heirs get the benefit of that on top of what I paid because if I had $100,000 in there, I’m going to have more benefit than that. There’s going to be a win all the way around, except for me. I’m the one that doesn’t win in that scenario. We could go down this rabbit hole, we could come up with all kinds of scenarios but the reality is, it’s such a versatile tool.
I’m constantly surprised because people surprise me all the time. I’m shocked at how few people utilize this principle when it can be incredibly beneficial to your growth. It can be instrumental in picking up a percentage point here and there. Everybody’s looking for this home run that makes you 30% or 40% IRR. You’re missing out on something here that’s going to provide you a 4% or 5% plus the benefit of protecting your family. Should something happen to you in an untimely fashion, on top of that it’s tax-free?
The worst place to put money is in a bank account because it’s not doing anything for you.
Obviously, the high returns are always good if you do the math, like on a larger spread, a 20 to 30-year spread. Suppose you had 5% compound growth without being interrupted over a 20 to 30-year period. It would probably come on greater than sometimes earning 10%. Sometimes losing money, making 15%, losing money. You’d have a larger spread over that 20 to 30-year period of consistent compound growth over the years.
Let’s talk about who should start when. There’s the argument that is out there with people that say, “If you’re looking at a retirement account. A younger person doesn’t have to put as much away to have that better benefit down the road.” Is that the same with this?
Yes, and no. Yes, it could be because, for example, if somebody is 30 years old and they’re planning on retiring at age 70. Technically they have 40 years of putting in money. They could just put in $300 or $400 a month over the next 40 years. That’ll give them probably maybe, it would be five extra money over that period. The money would multiply by five times over that course. They also have liquidity in the meantime. That’s not to say that you have to be 30 years old to do this. Let’s say somebody is 50 and they want to retire at age 70. There’s a lot you could do there. Let’s even say that somebody is 65 and they want to retire at 70 there are solutions for that too. It all comes down to the financial analysis with clients. We go through a fully thorough, 60 to 90-minute financial analysis. We understand their clients. We understand what their goals are, their objectives.
Everybody has different situations. I worked on a case with a guy who was 70 years old. He sold one of his properties. He had like $400,000 in cash. He put that all into a single premium whole life policy. He didn’t need twenty years to make the solution happen. He made the solution happen in one year because you don’t have the situation of his financial situation. A lot of people are similar to this. Some people only put in money for seven years. That’s it. They’ll put in like $100,000 for seven years and that’s it. The policy is paid up. It keeps growing. It’s illiquid and accessible. They don’t have to do anything about it anymore but it keeps growing. They also need $100,000 a year for seven years. In different situations like that there are many different ways of leveraging this.
That’s the thing that there is with this. This is why people need to be talking with someone like you because there are so many different ways and it is such a versatile tool. It surprises me how few people use it because I think that they understand they misunderstand it. I think it is more important what they do. On top of that, nobody wants to talk about dying. It’s funny because everybody wants to talk about car insurance. I’ll go buy car insurance, knowing you’re going to get in an accident. I got to get me some of that because someday I’m going to get an accident.
You go buy car insurance so that you protect yourself from something that may or may not happen. I do know a few people that have never been in an accident. They use their car insurance. This is something that all of us know at some point in our life. We will be at a point where our life insurance will be valid. Not for us but for someone else. Why aren’t we talking about this? Why aren’t we engaging with this and why aren’t we educating ourselves on this? As we conclude this, what else is there that I’ve missed in trying to bring this to light? In having this great discussion with you. What is it that I’ve missed that our readers need to know about? What else are our benefits and solutions behind the products are that you offer?
We touched on a lot of taxes. We touched on the ability to borrow. It’s a one-page document to borrow against that. They don’t have to qualify. You just need the cash on your life policy. The third is the policy that keeps growing even when you borrow them. Fourth, the death benefit of life insurance. We talked about that. Five, asset protection. In most states, the cash in there and the life insurance in most states is protected from creditors and people trying to sue you. That’s important too. Six, there are no assets under management fees.
As you have these policies, and they’re growing in value, you don’t have to subtract from that to pay a fund manager and advisory fee on to that. Whereas other investments are like that. When you have, for example, $1 million in a mutual fund or whatever the amount is, there are fees associated with that and other types of investments. With bank on yourself, there isn’t. That’s another advantage to clients that don’t have to worry about the assets under management fees. I think that’s about it. Those are most of the benefits.
Sarry, I appreciate you coming by and talking with my readers about this. It is something that they need to look at for all the reasons you mentioned because it is so vital. Not only to grow your money but protect those around you from the inevitable and something that’s going to happen. Thanks again for being with us. I appreciate it.
Thanks, Shannon. Thank you so much for having me on. I appreciate it.
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About Sarry Ibrahim:
Sarry Ibrahim is a financial consultant and the Founder of Financial Asset Protection, where he and his team help high net worth individuals, real estate investors, business owners, and retirees grow and protect their wealth predictably and safely. Sarry has cultivated a reputation for putting his clients first, no matter what. He prides himself on attending all client meetings without expectations or preconceived ideas to ensure that he is solving his client’s problems