Real estate investing is kind of like a never-ending process of trying to have your cake and eat it too…

On the one hand, you want to keep as much of your money invested in good properties as possible. That way, you’re maximizing your cash flow and keeping a diverse portfolio of properties that will appreciate over time.

At the same time, you always need to have cash on hand so that you can pay for maintenance, renovations, or invest in more new properties whenever a bargain might arise. How you manage this balance between liquidity and investing can be a critical factor in your success as a real estate investor.

There’s not a hard-and-fast rule about how much money an investor should keep in reserve, since each portfolio of properties is unique.

If you specialize in buying, renovating, and flipping older properties, then you might need a higher overall percentage of your portfolio in cash to cover the additional expenses. If you’re investing in multi-family rental units instead, the cash flow will often do a good bit of the heavy lifting.

But instead, let’s focus on where a real estate investor keeps their liquidity…

You see, while most Main Street real estate investors will turn to highly liquid, interest-bearing vehicles like savings accounts to fund their expenses and new acquisitions, there’s a growing contingent of real estate investors who are tapping into the liquidity of their whole life insurance to get their deals done.

This strategy works by taking out a loan against the cash value of your policy when it’s time to fund a new deal, then paying off that loan with the resulting cash flow from the property. Interest rates for these policy loans are generally a good bit lower than prime rates since the loan is secured by the cash value of your policy. Likewise — the approval process for these loans is much quicker, and the repayment schedules are flexible.

At this point you might be wondering; why borrow the money instead of just making a withdrawal from your savings account?

Because a loan against the cash value of your whole life insurance doesn’t actually diminish the policy’s value. Unlike a savings account, you’re not withdrawing your money … you’re just borrowing against it.

So instead of playing a game of “Red Light/Green Light,” constantly reducing your savings account before building it back up … you’ve got what’s essentially a “perpetual motion machine” at the heart of your portfolio, constantly and steadily growing on its own pre-determined schedule.

When it comes to implementing this strategy in the real world, I’m always reminded of my old friend Antonio…

Antonio was a big believer in whole life insurance for years, funding a multi-million-dollar policy that ultimately became instrumental in his real estate investing. His colleagues loved to tease him for his “unique” approach, with one going so far as to run the numbers for Antonio’s life insurance-based system compared to a traditional savings account-based approach with term life.

Even after a full decade of investing, his friend’s system showed that Antonio’s performance was within 1-3% of a simpler, more conventional strategy.

Antonio just blinked, wrinkled up his brow, and responded “who said I was stopping after just 10 years?”

And indeed, as they continued to run the numbers out over the long-term, they realized that the life insurance-based strategy would grow to double the cash value—along with a massive, tax-free, eight-figure death benefit for Antonio to pass along to his family.

In fairness, it’s pretty easy to misunderstand the benefits and flexibility of a whole life insurance policy.

We don’t have a whole ecosystem of marketers and media experts educating and promoting policies like we have for stocks, bitcoin, and even 401(k)s. So when an investor looks at the all-in cost of setting up a new policy, and compare that directly to the alternatives, it doesn’t seem all that compelling.

What’s more — whole life insurance isn’t just defined by its unique features. It’s also defined by the key differences that arise because of what whole life lacks…

For example, using a savings account to fund your real estate investing will trigger taxes on the interest income you earn. Meanwhile, life insurance dividends lack those taxes. And a loan against the cash value of your policy can give you tax-free access to your capital.

Likewise for term life insurance, which comes with a fixed policy expiration date. If the policy expires before you do (even by just a day), then there’s no cash benefit for your heirs … and the small fortune you spent on premiums over the years just vanishes. Whole life insurance doesn’t have an expiration date. The policy continues to grow for as long as the insured party lives.

Then there’s the rate of return you’re getting on your savings account or other liquid, interest-bearing assets. These assets are all subject to what’s called “interest rate risks” thanks to an unpredictable market. Life insurance lacks that interest rate risk, since your dividends are scheduled in advance and laid out clearly on the day you sign your policy.

Access to credit can be another unexpected hurdle for many real estate investors. It’s a simple fact that some of the very best real estate deals show up on the market after a major disruption, downturn or crash. Credit is often hard to come by at times like these, but that’s one more thing that life insurance policyholders don’t have to worry about — since you can take out a loan against your policy regardless of what’s going on in global markets.

And like I mentioned above, the approval process for these loans can be fast … very fast.

In fact, my friend Garrett Gunderson has told stories in the past of his real estate investing friends being outfoxed over and over by the competition … only to find out that his competitor was using his life insurance to “shortcut” the bank approval process and snatch up the hottest properties before anyone else could.

Obviously this is just scratching the surface of what’s possible with a well-structured, fully-funded whole life insurance policy — but you can see how this kind of “perpetual profits” strategy will allow you to make your money work even harder from day to day.

Key Takeaways

• Using whole life insurance provides real estate investors with a unique source of liquidity through policy loans, enabling faster and more flexible access to capital for investments and expenses.
• Loans against whole life insurance cash values do not reduce the policy’s growth or death benefit, allowing for ongoing wealth accumulation and risk protection simultaneously.
• This strategy helps create a "perpetual profits" system, where policy cash value continues to grow even while loans are taken, unlike depleting savings accounts.
• Whole life insurance offers tax advantages such as tax-free policy dividends and tax-free access to cash through loans versus taxable interest earned in savings accounts.
• The policy does not expire like term life insurance, ensuring long-term wealth continuity and a substantial, tax-free death benefit for heirs.
• Policy loans typically have lower interest rates and faster approvals than traditional bank loans, enabling investors to act quickly to seize market opportunities.
• Life insurance policies provide protection against interest rate risk and credit availability issues that often impact traditional investing and financing options.
• Overall, whole life insurance can serve as a foundational financial tool for high-net-worth investors and business owners to blend wealth growth, liquidity, and legacy planning effectively.

Ready to see how this could apply to your wealth plan? Click the big yellow Clarity Call button and let’s map it out together.