JF2168: Infinite Wealth Creation With Jim Oliver
Jim is the Founder of the wealth coaching company called CreateTailwind. He shares some insights today on infinite banking and how he teaches people to utilize it to purchase real estate and grow their business. We have had other infinite banking episodes before however they mainly focused on paying off debt whereas Jim will teach you how to grow your wealth.
Jim Oliver Real Estate Background:
- Founder of the wealth coaching company CreateTailwind
- Founded CreateTailwind in 1988 in Denver, CO as a traditional financial planning firm, but after weathering two major corrections on Wall Street, Jim and his team pivoted the company’s focus to building wealth beyond Wall Street.
- Today, CreateTailwind is a multi-location, nationally recognized firm that has helped thousands of individuals and businesses around the US create their own wealth and be their own bank.
- CreateTailwind’s main office is in Dakota Dunes, SD with offices in Denver, CO, Louisville, KY, Naples, FL, and Amelia Island, FL
- Say hi to him at https://createtailwind.com/
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Best Ever Tweet:
“Infinite banking is about the process of acting like your own bank, not the product” – Jim Oliver
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever; we don’t get into any of that fluffy stuff. First off, hope you’re having a best ever Sunday and because today’s Sunday, well, we got a special segment for you called Skillset Sunday, and today, we’re gonna be talking about infinite banking and how to use that to buy more real estate. Today’s guest is an expert on infinite banking and he uses it to buy more real estate. So makes sense for him to talk about it. How are you doing, Jim Oliver?
Jim Oliver: I’m doing great, Joe. Thanks for having me on the show, bud.
Joe Fairless: Hey, my pleasure and looking forward to our conversation. So a little bit about Jim – he’s the founder of a wealth coaching company called CreateTailwind, and he founded CreateTailwind in 1988 and focuses on infinite banking. Today, CreateTailwind is a multifamily location, a nationally recognized firm that helps thousands of people and businesses create their own wealth and be their own bank. So if you want to just give a quick refresher for anyone who hasn’t heard about infinite banking and hasn’t heard other conversations we’ve had on this show, just a quick refresher on what it is, but then let’s get into how we can use it to buy more real estate.
Jim Oliver: Absolutely. So infinite banking really started as a way to take over your debt – your cars, maybe your taxes, vacation, things like that, and stop paying other entities’ interest, and really getting money to flow back to you instead of money to flow away from you. Nelson Nash in his book, that’s the textbook on infinite banking; it’s called Becoming Your Own Banker. He says, “If some authoritative power distributed all the money in the world equally among all the people in the world, within ten years time, 97% of all that money would be under the control of 3% of the people,” and really, Joe, the reason is, is that money flows away from us and we don’t do anything to get money to flow back to us, and infinite banking is pretty simple – you write checks to you instead of the bank and you take over the banking function in your life. Now, that’s the basics of–
Joe Fairless: So those are the benefits of it and how it works, but what is it exactly?
Jim Oliver: Okay. So you have this very specifically designed insurance contract, and it’s not the insurance contract that your normal insurance agent would sell for death benefit or to leave the money in there and accumulate it over 20, 30, whatever number of years. It’s the way banks and corporations design life insurance, and so it’s cash-heavy, it’s the highest cash, lowest death benefit, and still be considered under the IRS regulations as life insurance. So you have this insurance contract, then because you have this insurance contract with a mutual insurance company, you have a contractual right to collateralize up to 100% of that, and you get to use the insurance company’s money. So if you think about this sitting in a tax shelter, growing, tax-deferred, eventually tax-free if you do it right, and because you have this account, the insurance company has to give you some of their dollars. By the way, Joe, what I just told you, 95% of life insurance agents don’t understand that. They think if you take a loan from your insurance policy, your money leaves the account. Your money doesn’t leave the account. So now you have uninterrupted compounding.
So you have this money sitting in this money pool, just think of it that way. Depending on your paradigm of insurance. So just think of it as a money pool. This other entity, this financial institution, this insurance company has to give you an interest-only loan; they can’t convert the loan, they can’t make you pay payments, anything else, and now you get to go put that money– you have control, now you put it in use, whether that’s buying an asset or paying off a debt, then that money is now in motion. The cash flow of that investment comes back through your banking system. Any principle paid back to the insurance company reduces the lien, which allows you to do what? Borrow it against it again, collateralize it again, and go buy more real estate. So that’s what I use it for, is to keep on keeping that money in motion, and the faster that it moves, it creates what we call velocity of money, what a bank does.
Joe Fairless: Why is that important?
Jim Oliver: Well, because think about what a bank does with your– let’s say, you had a $300,000 mortgage at 5%, and then your payment is a little bit over $1,600 dollars on that loan. What does the bank do with that $1,600 dollars when you pay them every month? They loan it out again.
Joe Fairless: They invest it.
Jim Oliver: Yeah, absolutely.
Jim Oliver: So by doing that, if you took that original $300,000 loan at 5% for 360 months, and you just loaned it out one more time, Joe, for the duration of that loan. So the first loan would be for the full 30 years and then all the way down to the last payment is only for 30 days. If you just loaned it out one more time under the same parameters, so the same 30-year am, 5% every time you loaned it out was the same and for that duration, you’d make over a million dollars on that $300,000 loan.
Now we all know just on a 30-year mortgage, you’re gonna pay in about almost double at 5%, but they’re gonna make more than a million dollars on that $300,000 loan by loaning it out over and over and over again. So we can create velocity of money just like that bank does by every time that our cash flows back into our banking system. We pay, we have windfalls and those windfalls go back into our banking system and we loan it out again, over and over and over. Now, remember our money never went anywhere. So it’s sitting in there, earning uninterrupted compounding every single day; guaranteed it cannot lose money, it can’t be zero.
Jim Oliver: “Guaranteed” is a watch out word usually in our industry, but in this case, describe why you’re saying that.
Jim Oliver: Because the whole life insurance contract, it has two projections when you see it. It has the guaranteed cash value, and that guaranteed cash value is at a 4% gross, and there’s a whole long story to how they came up with that, Joe, and they’re not going to go in there and change it, because they’d have to go before Congress again. So they have a 4% guarantee in there, and then they have a dividend, and the dividend is really a return of premium. So right now, companies are paying between 5% and 6%, with the dividend and the guarantee combined. So your money is sitting in there, and — so when you buy other types of insurance, they’ll give you a projected rate, but with whole life, they give you a guaranteed illustration, and then current market conditions. Now current market conditions today are pretty low. Dividends have been as high as 7%, 9%, in that range over time. So to be in the 5% to 6% range, we’re showing some really conservative numbers, but we can always just go back to the guaranteed. Infinite banking is about the process of acting like your own bank, not the product, and a lot of things that I see on YouTube and on some click funnel types of marketing is all about the product, but it’s your behavior. It’s just like in real estate investing, I’m sure that you would agree. It’s not, “Hey, I’ve got the greatest bank of all time that’s going to finance my deal,” it’s my behavior, it’s how I can negotiate the deal, how I can find the deal, how I’m going to syndicate the deal, how I’m going to wholesale the deal, how I’m going to flip the deal, whatever it is; it’s my behavior is where the money is made.
Jim Oliver: So walk us through a case study that you maybe have in your own portfolio that you’ve used this for.
Jim Oliver: Okay, so I used it for a really easy one, and it was a home run, so that’s why I like to tell this story. We all have our home run stories. So I bought a company from a much larger company. It was a forward and reverse logistics company, and I bought it in August of the year that I bought it, August 1st. And I bought the company for a little bit over $3 million, but I only had to come up with $75,000 out of pocket. Well, with logistics, and we were refurbishing electronics, Christmas season is the best season, so I was buying it at a good time because we were coming into the busy season. We had such a good four or five months there that I actually had a $400,000 distribution at the end of the year. So I took the $400,000, I paid back the $75,000, so then I asked people, “So how much money did I have in the business?” and they say $75,000. No, I only had interest on $75,000 for four or five months.
Joe Fairless: Because you just bought it with your policy?
Jim Oliver: Because I bought it with the policy and I used the insurance company’s money to buy the business, not mine. Mine stayed in that policy. So when you think about buying real estate, it’s the same thing. I bought this little house in Naples Park that was $192,000 using my insurance money, and I could have leveraged the bank’s money, too; I just didn’t need to, at that time. And then 11 months later, I sold it for $338,000. That was a great time, it was 2011, the prices were going back up, it was great timing, but my point to that is, is I could move really fast. I paid cash and I didn’t buy it with my money. So what was my rate of return on that? I just had the interest in it for 11 months.
Jim Oliver: That’s a good way to look at it. I hadn’t thought about it in that exact way… Because as you said– say you have a $100,000 policy and you have access to $95,000 of it. When you borrow against it, as you said multiple times today, your 95k is still earning that interest and you’re simply borrowing against it, but your original 95k– even if you borrow 95k, your original 95k is still making that interest as though you still have it in there, which it is. So you’re just paying the interest on that. When does it make sense not to pay back that interest and just keep on borrowing off of that original amount, if at all?
Jim Oliver: That’s a great question, and here’s the analogy I’ll give you for that question. Let’s say I would loan you $100 million, and the only thing that you had to do, Joe, is that in one year, you had to pay me $5 million of interest. First of all, would you take the loan?
Jim Oliver: You’d loan me $100 million and in one year, 5% interest?
Jim Oliver: Yeah, so you don’t have to pay me $1, but in one year, you gotta pay me $5 million of interest.
Jim Oliver: Yeah, I think I could make that work.
Jim Oliver: Right. So let’s just play along. So what if you took that $100 million, and then you leverage the bank’s money and you went and bought $500 million worth of real estate, and let’s just say it netted you 5% for that year. So you and I get together, I assume you’re buying me lunch, because you’re gonna write me a check for $5 million, and you’re gonna keep $20 million, and I say, “Well, do you want to pay any of that principle back?” and you go, “Nah, I think I’m good. I’ll see you next year.”
So the scenario where if my money is out there moving fast enough, I might not pay back the loan, and it’s okay, because I get to use somebody else’s money to go build my wealth, and my money is in a tax shelter. Now, think about this, Joe. When I start to take that money out– now, I don’t like to use the word retirement, because I don’t think any of the people that listen to your show are trying to build a retirement fund; they’re trying to build passive income. But when I want to start taking any distributions from this insurance contract, if I do want to start taking them, is it’s tax-free, because I’m going to withdraw the basis, and then I’m going to borrow the money out because my dividends are going to be growing at that time faster than any interest payments would. So if that was all the money I had, I wouldn’t have to file a tax return, but the people listening to this show are even smarter than, that because they’re going to have real estate which depreciates. So they’re gonna depreciate their real estate and they don’t have to pay tax on those distributions from the insurance contract.
Jim Oliver: When would it make sense not to use that money to buy something that would cash-flow? So for example, I’ll use my own policy. I’ve got a $100,000 policy with this infinite banking, and I think I have 95k available. I haven’t touched it, just because it’s a hassle and I don’t need to, but am I missing out on the main benefits of this by not doing it?
Jim Oliver: Even if you paid your taxes, even if you bought your cars, even if you did anything like that, but the next real estate deal that you do, what I would do is I would take a loan for part of that, because you’re increasing your rate of return, because you’re not going to use your cash. And wealth has to reside somewhere. So if you could buy more real estate, if you could take that 95k and let’s say you could buy a $450,000 property, and leverage the bank’s money – I’m not saying don’t leverage the bank’s money, just don’t let them control the banking function. Now you have $450,000 worth a real estate cash-flowing; let that cash flow back into your insurance contract until you have another opportunity, and then just keep doing it.
But if you wanted to use it for taxes or you wanted to use it for vacations or anything else, that’s what I would do, because when you pay cash, you have lost opportunity cost; and interrupting your compounding – that creates lost opportunity cost. And since you can borrow the insurance company’s money interest only while your money grows inside of a tax shelter, you eliminate lost opportunity cost. The other thing that you do is how many things– if you use it for real estate, then you could deduct the interest that you’re paying. By the way, I’m not giving you tax advice, but I’m saying your CPA could confirm for you that you could deduct that interest that you’re paying to the insurance company, because again, it’s not your money that you’re borrowing, remember; it’s the insurance company’s money. So just like any other financial institution, you could deduct that interest, but the money that you’re earning is growing tax-free. So how many things in your life, Joe, do you get to deduct the money that you’re paying off your taxes, but the money you’re earning you don’t have to pay tax on? Not very many, right?
Joe Fairless: Yeah. Good stuff. Jim, I enjoyed our conversation and I appreciate you giving some of these examples that really brought it to life. The business example resonated with me in particular. So how can the Best Ever listeners learn more about what you’re doing in your company?
Jim Oliver: Just simply go to createtailwind.com. We’ve got some free resources on there, we’ve got our podcast called Breakaway Wealth. There’s episodes on there, there’s free articles on there. If anybody sends me an email at jimoliver@createtailwind. com, I’ll send them a copy of “Becoming your own banker” by our Nelson Nash as our gift, Joe, yours and my gift to them. I’ll send that book out to you for free. If you want a coaching session, you can sign up for it right there on createtailwind.com.
Joe Fairless: Jim, thanks for being on the show. Hope you have the best ever weekend. Talk to you again soon.
Jim Oliver: Thank you, Joe.
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