2d (edited) • Develop a High income skill
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Plant your own money tree(s)
1.Buy a property
2. renovate
3. rent
4. refinance
5. repeat
The BRRRR method is a real estate investment strategy that involves a five-step cycle: Buy a distressed property, Rehabilitate it, Rent it out to tenants, Refinance it based on its new, higher value, and Repeat the process with the capital gained from the refinance. The goal is to build a real estate portfolio by using the cash pulled out from a refinance to acquire new properties.
The five steps of the BRRRR method
- Buy: Find and purchase a property for below its after-repair value (ARV). Investors often use short-term, high-interest loans, such as hard or private money, to quickly secure the deal.
- Rehabilitate: Fix up the property. This step is crucial for increasing the property's value and can involve renovations, repairs, and cosmetic updates.
- Rent: Once renovations are complete, rent the property out to tenants. The rental income should cover the monthly expenses, and ideally, generate a profit.
- Refinance: Secure a new mortgage on the property, using the new, higher appraised value. The goal is to pull out the cash you initially invested in the purchase and rehab, allowing you to get your capital back.
- Repeat: Take the capital from the refinance to purchase another distressed property and repeat the entire process. This allows investors to scale their portfolio over time.
Key considerations for the BRRRR method
- Finding the right property: It is essential to find undervalued properties that require work. A common guideline is the "1% rule," which suggests the monthly rent should be at least 1% of the total purchase and renovation costs.
- Financing: Short-term financing is often necessary for the initial purchase and rehab, but it comes with high interest rates and needs to be repaid promptly through the refinance stage.
- Market research: Investors often look for cash-flowing markets where rental income can cover costs, rather than markets that are primarily focused on appreciation.
- Calculating ARV: Carefully calculate the After Repair Value (ARV) to ensure the property's value after renovation justifies the investment.
And
- The Buy (stock)
- Borrow (borrow against the stock)
- Die (leave the stocks to family)
- Whole life insurance (get whole life insurance to pay off debt)
The
"buy, borrow, die" strategy is a legal tax minimization technique, primarily used by the wealthy, involving three steps to build and access wealth without triggering capital gains taxes during their lifetime. It leverages specific provisions in the U.S. tax code relating to capital gains and inherited assets.
How the Strategy Works
- Buy Appreciating Assets: The investor uses their wealth to purchase assets that are expected to increase significantly in value over a long period, such as stocks, real estate, or a private business. The key is to hold these assets for the long term, allowing them to grow in value without selling, thus deferring any capital gains taxes.
- Borrow Against the Assets: Instead of selling the appreciated assets to generate cash (which would be a taxable event), the individual uses them as collateral for low-interest loans, such as a Securities-Backed Line of Credit (SBLOC) or a Home Equity Line of Credit (HELOC). The money borrowed is not considered income by the IRS and is therefore not taxable. This provides the individual with liquidity to fund their lifestyle, make new investments, or cover expenses without shrinking their asset base. The interest on these loans can sometimes be tax-deductible if used for specific purposes, such as other investments.
- Die and Pass Assets to Heirs: Upon the individual's death, their heirs inherit the assets. Under current U.S. tax law, the assets receive a "step-up in basis" to their fair market value at the time of death. This effectively erases all the accumulated capital gains tax liability that occurred during the original owner's lifetime. The heirs can then sell the assets at their current value (or use a portion of the inherited assets) to pay off any outstanding loans, keeping the remaining wealth without paying any capital gains tax on the appreciation.
Key Factors
- Legality: The strategy is entirely legal, as it uses existing tax laws and provisions.
- Step-Up in Basis: This tax rule is the critical component that allows the transfer of wealth without the embedded tax liability being realized.
- Risks: The strategy is not without risks. Market downturns can decrease the value of the collateralized assets, potentially leading to a margin call (forcing a sale of assets at an inopportune time) or even foreclosure if loans cannot be repaid.
- Accessibility: This strategy works best for those with significant existing wealth who can afford large, appreciating assets and qualify for favorable borrowing terms.
And
The Rockefeller waterfall strategy
- buy whole life insurance (maybe $10,000 down)
- Borrow against it to open a subway or McDonald’s fast food restaurant
- Whole life insurance pays off debts
- Start whole life insurance for each kid (with $10,000 down) so when they are 18 they can borrow to open a McDonald’s restaurant
The Rockefeller Waterfall Method is a strategy for multi-generational wealth transfer that uses life insurance and trusts to provide tax-efficient growth and distribution
. It involves a policyholder (parent or grandparent) purchasing a life insurance policy on a beneficiary (child or grandchild), and overfunding it to build tax-deferred cash value. This cash value can be accessed, and the policy is eventually transferred tax-free to the next generation, ensuring wealth flows down and is managed for long-term growth and preservation.
How it works
- Purchase and fund a policy: A policyholder buys a permanent life insurance policy on a child or grandchild.
- Overfund the policy: The policy is overfunded over a few years to accelerate its cash value growth on a tax-deferred basis.
- Gain access to cash value: The policyholder can access the cash value for their own needs, such as loans.
- Transfer ownership: The policy is eventually transferred to the next generation, often through a trust, or the beneficiary is named as a contingent owner so they automatically inherit it upon the policyholder's death.
- Transfer wealth: The cash value and death benefit are then available to the next generation, who can withdraw funds or benefit from the death benefit tax-free.
- Control distributions: The policy and associated trusts can have specific terms about how and when the money is distributed, preventing rapid depletion and ensuring future use.
Key benefits
- Tax efficiency: The method offers tax-deferred growth within the policy and tax-free transfer of the death benefit.
- Asset protection: Irrevocable trusts used in the strategy help shield the assets from creditors and lawsuits.
- Control: The strategy allows for structured distributions to beneficiaries, providing control over how and when the wealth is used.
- Long-term wealth preservation: It is designed to prevent financial erosion over multiple generations and doesn't rely on market returns.
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