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Joe Fairless on Infinite Banking

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Gary Pinkerton hosts Joe Fairless to discuss infinite banking. Joe has been working with Gary about his method of investing and storing cash. This is a creative idea that not many have thought about and Joe goes into his experience.

Announcer 0:04
Welcome to the heroic investing show. As first responders we risk our lives every day our financial security is under attack. Our pensions are in a state of emergency. A single on duty incident can alter or erase our earning potential instantly and forever. We are the heroes of society. We are self reliant and we need to take care of our own financial future. The heroic investing show is our toolkit of business and investing tactics on our mission to financial freedom.

Gary Pinkerton 0:39
Welcome to the heroic investing show, a podcast for first responders, members, the military, veterans, and anyone looking to improve their financial future and gain some freedom with their time. We teach America’s heroes how to build passive income, build their startup business and safely grow wealth through real estate and other alternative investments. We have current and private First Responders put protections systems and a team in place to help them build a life where they can focus on their passion, that service or product that they’re uniquely gifted to share with others, making the world a better place for all of us. My name is Gary Pinkerton and I co host this show with Jason Hartman. This is Episode 201. Hey, rook investors On this episode, we turn the tables once again, this is me being interviewed on Joe fairless is extremely famous and awesome show the best ever real estate podcast. I’m extremely humbled to have been asked by Joe to come on and talk to his audience about what I do in my day job. And what that is, is learn how to pair the incredible wealth creating capabilities of real estate and cash value life insurance and it’s the path of the wealthy. And it’s what people in America used to do and it’s what people in America need to get back to doing we need to get away from the glitz. And glamour of the casino world, which is Wall Street and get back to the basics and the basics are storing wealth, growing wealth in tax advantaged things like life insurance, and real estate. So you know another aspect about this not just growing your family’s cash and your downpayment, money and your future investment dollars. Yes, it is a great place to store that. And a lot of people get really caught up in this infinite banking thing, but how about ensuring the number one most important asset in your life and that’s you, that’s your income earning capability. We are our best asset and we’re also the only thing that creates guarantees in our own life. You want to be guaranteed that your future looks bright. Let me tell you every morning when you get up and you look in the mirror, you’re staring at that guarantee that is the only thing that is going to ensure that you’re going to be safe. I don’t care if you have $5 million $20 million $500 million. All you got to do is find a couple of crooks who befriend you They’re your best friend and they take the money and now you’re in trouble. But if you still have the ability and the desire and the experience, and the network to go out and remake the money, just like Donald Trump did, then you’re never really at risk. But the thing you’re staring at in the mirror in the morning, that’s the thing that makes you safe. And it blows my mind that people don’t insure the most important thing in their lives for their entire life. I think every day of my life, the most important thing is going to be staring me in the mirror, whether I’m 4050 or 110. That’s still on that day, the most important financial tool that I have in my tool bag, and I think you should adopt the same opinion. It’s like, you know, here at let’s, let’s imagine that you’re working at a nonprofit you love working there, but it’s near New York City, and so you get a little crash pad, and it’s $100,000 property. Okay, that’s crazy. In New York, let’s call it $200,000. And you get a loan on it because you value long term fixed rate debt. And because you have a loan on it, then the bank requires that you insure that asset. But yet in your family, you’ve got a $10 million castle in northern New York. And it’s been in the family for generations, it’s completely paid off has been for 100 years. And so you don’t have to get insurance on it. But would you really not insure that $10 million asset so it’s the same way with with ourselves like people say, Well, hey, I’ve got a few bucks in the bank. I’m not going to insure my number one asset which is myself. Okay, off the soapbox, hate. What I really hope you do is you’ll listen really closely to this one and please give me some feedback. Email me at Gary at Gary Pinkerton calm, and let me know, hey, this resonated it didn’t resonate. What I’m trying to do is simplify a concept that many people for whatever reason, I think it’s marketing personally. Try to add a lot of sizzle to it and add all kinds of flair and they add complexity. Listen, I’m a nuclear engineer. I can add complexity, but I think it works against the ability to get in all of the awesome Americans out there on a really, really good path. So combination of real estate and life insurance even better than either one of those standing on their own love to talk to you all day long about each of them individually or both them together. But what I’d really like to do is hear from you all, does this pretty short message pretty short podcast with Joe resonate? Or does it confuse if it still confuses? Well, I’ll go back to working on my craft and making it simpler because it’s not a very hard concept. It’s been around since the 1800s. It’s just prudently storing and growing money in a place with a company that’s never in one year lost a penny for anyone. So let me know I really appreciate it. Your cash value in the policy is a combination of what you’ve contributed what the insurance company has boosted by the guaranteed crediting of dollars every year to it. And then the dividends

Joe Fairless 5:52
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Gary Pinkerton 9:17
I’m doing great. It’s a true honor to be on your show. I’m really looking forward to Joe. Yeah, looking forward to our conversation as well. And first off ever Lester sorry, this is a skill set Sunday episode, we’re gonna be talking about specific skill and the skill is infinite banking, and what it is how to do it and questions to ask if you’re working with someone to set it up for you. So Gary is a wealth strategist at paradigm life. He has funded over 100 rental units using other people’s money with private banking, this infinite banking since 2011, and has helped his clients do the same. He’s a former captain on a nuclear sub. So he’s in the Navy before he was a captain on nuclear subs. Thank you, sir, for what you did for our country. And he’s based in Jersey Shore New Jersey. So with That being said, Gary, first, what is infinite banking? Sure. So it’s a way to use uniquely designed whole life insurance policies to store and grow your wealth. So everyone has a need to store cash somewhere. I mean, that’s really a combination of a lot of things. It’s your emergency savings for your family, its property reserves, its business reserves, and it’s money, you’re setting aside and growing for future investments. So for your upcoming property purchase, or really whatever, my store just about all of my cash that I absolutely need in the future, that I can’t take a risk of it being lost, even kids college money, but basically, we’re all storing and growing that money if we’re prudent somewhere and a lot of times, it’s just in the same as our checking account. And so this is an opportunity to get both a much, much faster growth of let’s say, four to 5% tax free on your money while still having full access to it and you get a lot of life insurance protection. So you’re getting both kind of the foundation of your business. personal financial wealth, meaning life insurance, protection of your future income for the family, as well as a better place to store simply a different place to store your cash, let people talk about it as an investment. It’s really not, it’s just a much more efficient place to store and grow your wealth.

Joe Fairless 11:15
Okay, so let’s unpack those statements that you made four to 5%, tax free growth with full access plus life insurance protection. So that is why I chose to do it. But that sounds way too good to be true. So how about let’s dig into each component of that the percent growth, the four to 5%, and then the tax free part and then full access part and then the life insurance. So those four parts?

Gary Pinkerton 11:44
Sure, absolutely. You may have to remind me what part Rhonda, you start off with the growth four to five growth, right? Yep, sure. So we work with only a whole life insurance company. You can do this with universal to some levels of success and if you know what you’re doing, I don’t believe there’s value Be there and doing it. There’s not a track record. So we go with whole life. And it’s a very simple product. Insurance companies are collecting premiums, growing those premiums and then handing them back to the beneficiary one day, well, starting in the 1930s, they give you access to the value of that cash that’s in there. So if you have $100,000, sitting in your policy that’s growing, you can go to them and borrow $100,000 from them. And the borrowing and access inside of it is not the growth. The growth side for whole life insurance is a combination of guaranteed increase. So if you look at the policy illustration that you got, there’s a table in there. And on the left hand side, there’s a column for the guaranteed worst case growth, even if there’s no profits if the company’s not profitable. But since we work with a Mutual Insurance Company, which is a private company, meaning that there’s no shareholders to distribute profits to every year, so those profits are just handed back out to the owners of the company, which in the case of life insurance, or just the policyholders, so you kind of get it back on a pro rata basis based on how big your cash is that given year. So you Guaranteed increase which I tell people big picture. I mean, it changes over your life as you age. Essentially, it’s 2% a year guaranteed after covering the all of the costs are in the insurance. So about 2% on the guaranteed side, and another two to 3%. Today in profits being handed back, but these profits or dividends are completely dependent upon what the lenders out there in the world can get. So banks right now are lending it five or 6%. Insurance companies are doing the same thing. They put your money to work in the economy lending out to major corporations. Right now they’re getting four to 6% returns, which means that after covering expenses, you’re seeing another two to three there. So summarizing that a couple of percent guaranteed annually, and then two to 3%. In this zero interest rate world we’re in in the 1980s but the dividend was eight to 10%, if that makes sense. Mm hmm.

Joe Fairless 13:51
Okay, so when you implement this policy or this strategy, do you have to do anything other than buy the policy In order to gain that four to 5% growth, do you have to actually have to manually manage it and do transactions or just magically because you purchase the policy, it achieves that four to 5% growth in

Gary Pinkerton 14:14
almost all of the whole life insurance companies that do this. And there’s probably 25 mutual companies I work with 10. Generally, I work with four or five of the best, most easily designed companies, but all of them will put the money that is being collected and protected. They put it into a general fund, and they put it to work in the economy. Mainly they’re lending it out to major corporations for decades at a time, they’re also funding. He was a debt partner in large real estate developments and commercial buildings. So most of the time, there’s nothing for you to do to see that type of return. There is one company that I work with that actually Joe is the one you went with, that they give you the ability from time to time if you want to, to tie your profits, the dividends to the performance of the s&p five Hundred and you can get a little bit of a boost if you want to actively manage it. I don’t have any clients doing that right now, primarily because we’re all kind of foreseeing a little bit of a correction or a pullback. But bottom line, most of the time, it’s on autopilot, you’re simply just carrying out the plan that you put in place and reaping the benefits and using the cash value from time to time when you want to.

Joe Fairless 15:22
Okay, that was the percent growth. What about the tax free statement? You said?

Gary Pinkerton 15:26
Sure. So growing inside your dividends, the profits will grow inside the policy without tax being applied. If you physically withdrew them someday and some people do, then you would be taxed. But there’s a taxation for life insurance. It’s really the only thing out there that in Joy’s this, and it’s called first in first out taxation, which basically means that if over time you’ve contributed $200,000 in contributions to this than the first 200,000 you pulled out would not be taxed. Beyond that it would be taxed. Just like money coming in like interest you earn in your savings account. So most people wouldn’t do that they would maybe withdraw the basis or the original contributions when they get into retirement and want to do withdrawals. But throughout your life, you can borrow against the thing borrow the insurance company’s money, pledging yours as collateral, and access the full value even that part that is growth or profits without any taxes being applied. So theoretically, what you do is you borrow against it during your working years, you perhaps withdraw the contributions and borrow against the rest in retirement, and then pass it on tax free is a death benefit. So it’s very similar to real estate in many aspects. But if you think about a 1031 tax deferred exchange, that you go from property to property, and then eventually gets a step up in basis at death, that’s what happens with life insurance,

Joe Fairless 16:51
the full access part,

Gary Pinkerton 16:53
so gaining full access. So if you remember as I was talking about your cash value in the policy is a combination of what you’ve contributed what the insurance company has boosted by the guaranteed crediting of dollars every year to it, and then the dividend. So for very simple math, let’s say that you’ve contributed $200,000. And you look at your cash value, and there’s 300,000. There. And that’s a combination of 50,000 that came from guaranteed increases over the years, and 50,000 that came from the dividends or the profits that got credited. So of that 300 200 were your contributions, you can withdraw that to get access to if you would like, but the full 300 you can access by borrowing an equivalent amount of money from the insurance company. And it’s the equivalent of going into a bank, putting $100,000 on deposit and then going to them and using that as collateral for borrowing money from that now, you would never do that at their bank because there’s no advantage to do that on a life insurance company because your money is in there growing without compounding without taxes at equivalent rates of what you’re going to borrow the money for it makes a big difference over time.

Joe Fairless 18:03
So just for my own clarity, to restate it, I put in $100,000. So with my policy, I did $100,000 110,000, I think, and I am able to get access to most of it like 90 some percent of it immediately. And let’s call it $95,000, I can get $95,000 and borrow that 95,000 and do whatever I want with it. And that initial the hundred and 10,000 or whatever I put into it, that is still making the four to 5% gross. So even though I took out 95 K, that initial hundred and 10 K or whatever it was, that is still making the four to 5% gross. So there’s the difference and doing the bank thing that you said versus doing this Not to mention having the benefits of life insurance protection.

Gary Pinkerton 18:55
That’s right. So I was just doing an example with a client’s a pretty common example that Single Family investors or people who were in st minimal amounts into larger syndicated deals might do. Say you have $25,000. And for this example, it’s $100,000 house and your downpayment with closing cost is 25,000. So you have a choice, you can either put that into the property and in 30 years, maybe sell it and take it back out. Or you could have the surance company put their money in there, and you just put yours in your policy and allow it to grow and compound there. So in the house, you’re 25,000 sitting in the house. Yes, it enables a lot of growth and appreciation and tax deductions and things and the cash flow, but essentially itself, it’s just kind of parked there. If I could get my next door neighbor or best friend to put their money in my property instead of me, that would be far better off for me, right because I’ve given up its ability to grow. Whereas the other person who has an identical house but put their money in their policy, after the 30 years that I used in the example there has grown to $93,000. The 25 turn into 93. They did have to pay $22,000 to the insurance company in that example, for the interest, but they earned well over 70,000. And that’s the power of being able to borrow somebody else’s money and not have the opportunity costs of yours being locked up without earning.

Joe Fairless 20:24
And then in terms of paying back that loan, in the example, go with my example that when I borrow 95,000, if I die before I pay it back, then it simply gets deducted on the insurance proceeds my family gets from the life insurance policy. And it’s as simple as that, right?

Gary Pinkerton 20:44
That’s correct. Yeah. So your insurance amount, your death benefit is always going to be substantially larger than the cash value. And so as a result, you can even max out your cash value and still be comfortable knowing that there’s still a large amount of insurance tax free That will pass your family.

Joe Fairless 21:01
So the last part that you mentioned initially in our conversation is life insurance protection. We just touched on that, but anything else that you think we should talk about in terms of the life insurance protection

Gary Pinkerton 21:11
from time to time I come across people who are single, they really don’t have anyone that they want to leave it to. And sometimes they see that as a detraction, from using this process like I would use it or there wasn’t the life insurance. However, remember the performance I talked about the four to 5% in this one to 2% savings account world, the four to five you’re getting here without the impact of taxes is already covering the insurance. So you may today decide you don’t like it or don’t want it or see as a detraction, but it’s already factored in. That’s one comment. But that’s a very minor number of people that I ever meet with most people as they get older and getting the sodic they will either have grandkids or will have a little neighbor kid that they’ve mentored or they have a favorite charity or church that they really have valued receiving benefit from and want to give back to you. So I’ve really actually never in the end seen anyone who didn’t have a place that they wanted. To save it to give that money to, and it will come out tax free. There’s wonderful things you can do by owning it or having the beneficiary be a trust a family trust for kind of multi generational planning for legacy. For me early on for a lot of my clients, and I think Joe, you’d probably agree, it is really comforting knowing that I have personally taken on five or so million dollars of, I call it good debts, fixed rate long term debt. And my wife was a bit uncomfortable with it when we first started, but she was greatly comforted by the fact that there was early on $3 million of life insurance and considerably more now. Totally there just because it was the vehicle in which I’m storing and growing cash for my real estate portfolio.

Joe Fairless 22:42
Yeah. So when you pass away, then the debt will be paid out from the life insurance. What is it called a pre what is pay out what? Thank you. Thank you so so your debt will be paid off by the death benefit, and then there will be more on top of that for her and Any other life,

Gary Pinkerton 23:01
right? Or she could walk away from the real estate properties if she wanted. But if she paid off the debts with the you were saying the amount that I borrowed against, that’s true. But with that level of insurance, she could easily have paid off the properties as well and have a bunch of cash flowing, unencumbered properties. If she wanted to do that it would immediately replaced her concern for not having my income coming in anymore.

Joe Fairless 23:22
So let’s close this out with a specific example of maybe just a single family home short now that we’ve gone through the concept. How have you done this just on one single family home?

Gary Pinkerton 23:34
Sure. So what I do is I go get conventional financing or just commercial but so far, I’ve used conventional 30 year fixed rate mortgages, and I get those at 75 to 80%, depending on the interest rates at the time, let’s say 80%. So $100,000 property 80% loan from a bank. And then I’ve got the 20% down plus maybe 5000 in closing costs, so $25,000 I was pre staged my money in my personal banking system, and then go to the insurance company and borrow their money. And I know that you’ve gone through this process, but it should be a very quick two to three day process for the money shows back up in your personal bank account, whatever bank you normal, traditional bank that you’re you’re doing your banking at, and then you just treat it as cash from there when you go to the closing table. And the lender recognizes that your money in the life insurance is your cash, and they see this money that you’ve borrowed as your cash. So there’s some Fannie Mae guidelines that came out in 2008, that this works just fine with it’s really the only way you can borrow other people’s money to fund a down payment on a property. So I borrow the 25. I close as if it’s cash. And then as I receive cash flow back, I make a personal choice to just send that back and pay down my loan because the moment I pay $1,000 back to the insurance company on their loan, it frees up $1,000 of cash in my bank that I can again either withdraw or borrow against again, so we putting that money back in there, it reduces my loan and it causes my cash to be available again for the next one. So really, it’s much higher velocity than I experienced before I started doing it that way.

Joe Fairless 25:13
And when you said earlier, you would pre stage your money. What do you mean by that?

Gary Pinkerton 25:17
I just meant that sometimes people will say, Well, I don’t have $25,000 yet in my cash value, can I still get the loan. So rather than leaving my money in my checking account, to use as cash as a down payment, I contributed to my life insurance policy, I’ve built the cash value, and now it’s available pre stage there as money that I can use to go and pledges collateral to borrow from the insurance company.

Joe Fairless 25:43
Got it. So when you identify a property, you make sure that you have the amount that you need to close with the loan as cash value on your life insurance policy. So you can borrow against that get that cash out and use for the property.

Gary Pinkerton 25:55
Exactly. And as I mentioned at the beginning, I’m storing other money there. So I never go up against My actual cap, I’ve got a ledger or actually I use Quicken and I keep track of how much money that staged in my policy cash value is actually dedicated as family emergency money as property reserves as business reserves. So I don’t touch that money, I kind of make it off limits. And then whatever’s available as the remainder is my investment capital.

Joe Fairless 26:20
What’s a good rule of thumb, in your opinion for what that percentage should be with available cash versus cash that well, it’s available, but you just don’t want to touch?

Gary Pinkerton 26:31
Yeah, so it’s really not a percentage thing for me, it’s just an actual dollar amount. So for me, I’m pretty conservative. So I actually use six months worth of my personal after tax income. And then for properties I used to use four months principal interest tax and insurance. I’ve reduced that down to two months as I got over 10 properties. I just think it’s unreasonable that they’re all going to have the same problem at once. So I use two months there. And then for business reserves, it’s highly dependent on what your business is like. I have about 5000 And marketing expenses every month or so. So I kind of hold that back in reserves to have it available.

Joe Fairless 27:06
How can the best ever listeners learn more about what you doing in paradigm life and infinite banking?

Gary Pinkerton 27:12
Well, I would love for the best ever listeners to go to Gary at Gary pinkerton.com. And then they can also check out paradigm life specifically by sending me an email to G Pinkerton at paradigm life dotnet and there’s a tremendous amount of resources directly at paradigm life dotnet for them.

Joe Fairless 27:31
Cool. So the first one you gave was your email address, right?

Gary Pinkerton 27:34
My email address Gary at Gary Pinkerton calm and the website, Gary pinkerton.com. has a lot about me as well.

Joe Fairless 27:40
Cool. Well, Gary, thank you for talking about a concept that I have read books on I’ve interviewed people and you explain it very thoroughly and in a straightforward fashion which is necessary for something in my mind that says so damn confusing as this but once I get started understanding it. It made a whole lot of sense. And so that’s why I did it. Plus, as I mentioned, beginning of our conversation, you were referred to me from a mutual friend who I greatly respect. I know he’s financially savvy and connected, so he knows what he’s doing too. Thank you for being on the show enjoyed getting a refresher for why I did this. And looking forward to continuing our friendship and enjoyed our conversation. So thanks for being on the show and talk to you again soon.

Gary Pinkerton 28:30
Absolutely. Thanks so much, Joe. Best Ever listeners go get it.

Announcer 28:35
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