Build Wealth Tax Free with Other People’s Money

The term “Other People’s Money” or OPM has been made famous by Real Estate coaches and investors and around the world. And for good reason.

The math is really very simple. If you can borrow at “x” percentage and earn a return at a higher percentage, your profit becomes the spread which is fairly easy to calculate. Your profit is even stronger when the asset you are “borrowing” from (Asset A) continues to grow while your new asset (Asset B) also grows. In simple terms, you have used once source of capital to build two separate assets.

It is safe to say that you have heard of or used this strategy yourself, but in all likelihood the only asset you have “borrowed” from has been real estate. Either your principal residence or other properties you own. What is not as commonly understood is how you can use an investment grade, permanent life insurance policy to accomplish the same end result. In other words, what if you added life insurance to your asset portfolio in order to then borrow from it to continue to build your real estate or investment portfolio, while still creating an estate benefit that will cover your eventual terminal tax bill.

Here’s how it works.

1. You purchase a permanent life insurance policy
2. You then assign this policy to any major Canadian bank
3. This bank then lends you back 100% of your annual deposit or 100% of your total cash value
4. You then reinvest these proceeds into your business, real estate portfolio or investment of your choosing

What is your end result then? There are multiple benefits to this strategy including:

1. You have purchased permanent life insurance for life and are only responsible for the interest only payment of your loan
2. You have created a tax free benefit to your estate or business that will cover the taxes due at death
3. You have repurposed funds you were already investing in your business or other assets to create a secondary asset that allows you to build tax free wealth and estate preservation while still maintain full liquidity
4. If corporately owned, you have created a tax free opportunity to withdraw funds from your business to pass down to your next generation

This strategy like any other is not for everyone. But if you have ever borrowed funds to grow your wealth and understand the power of using Other People’s Money, this is absolutely worth exploring as a part of your overall wealth creating stratergy.