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You got a Letter of Credit at 2% on the bond market?
I did not realize the bond market issues letters of credit. Can you explain?
Then you refinanced it with a private institution and are paying more?
What does a Letter of Credit have to do with insurance premiums?
You correct, I don't understand.
I'm not sure I fully understand myself. I'm an MD, not an MBA, LOL. As many times as it has been explained to me, it is still a bit confusing to me, but I will explain it as best I understand.
The letter of credit is where we drew the yearly premiums.
Back when we originally got the letter of credit the finance guy said we shopped it out on the bond market to get 2% rate. That is where the high net worth came in, the way I understand it, in order to collateralize it at such a low rate. At the time the S&P fund we were in had to be 10% and 2%, because there was no cash in the "cash value" above the insurance value so we had to be sure that the interest was covered by the fund, so I wouldn't be required to fund the interest with my own money if the market was down in any particular year.
Once the cash value was above the level of the letter of credit, we wanted to change to a fund with a little more interest, so we got into one that is 12 and 0. We refinanced around the same time. Not sure if those two events are related or if we had to refinance for another reason, but he found us a 3% rate with a private lender using one of my properties as collateral.
The best part is that from day 1, if I was to die, my trust would get the insurance value minus the borrowed money, which was still a very substantial amount of money. And now, years later, the cash value is worth more than double the borrowed value, PLUS the entire insurance value. It was one of the best financial decisions I ever made. Where else can you legally make 7 figures without putting a dime of your own money in?
There are people that specialize in this that can give you a MUCH better explanation than I just gave you. If you are really interested, you should contact one of them.
I don't want to get into actual numbers on here, but if you want to DM me, I can go into more detail if you are interested.
Edit: And just to be clear there is a servicing fee on the letter of credit which is separate from the interest paid on the money that has actually been borrowed. But the servicing fee is not substantial.
Last edited by AnesthesiaMD; 05-23-2022 at 03:44 PM..
If you have a large cash position from either selling high or whatever, maybe invest 25% of it here. If it drops more, invest another 25%. The market is still overvalued but we are a bit oversold here much less overvalued than we were at the peak.
There are some unknown variables... will China make a move on Taiwan? How's the war with Russia going to end? Will China ever get rid of their covid zero policies? Will the other nannie states lock down forever every time there's a covid spike?
Don't get caught with the herd in getting too pessimistic though. It's easy to get caught up in short term market sentiment from short term moves in the market. Watch what the central banks are doing with QE/QT and interest rates. Don't fight the central banks.
We 'could' have another 15 years of flat market like the 1970's, but we'd need much higher interest rates for that to happen. I just don't see it. However the consumer is heavily in debt and largely tapped out, so who knows. Maybe a recession is coming. This is a managed economy that will require perpetual QE and low rates to sustain itself unless debt is monetized or there is some reset.
Where's the market going over the last 12 months? Flip a coin. It was much more obvious last fall when we were at ridiculous levels. Too many unknown variables. Time in the market, not timing the market.
I'm not sure I fully understand myself. I'm an MD, not an MBA, LOL. As many times as it has been explained to me, it is still a bit confusing to me, but I will explain it as best I understand.
The letter of credit is where we drew the yearly premiums.
Back when we originally got the letter of credit the finance guy said we shopped it out on the bond market to get 2% rate. That is where the high net worth came in, the way I understand it, in order to collateralize it at such a low rate. At the time the S&P fund we were in had to be 10% and 2%, because there was no cash in the "cash value" above the insurance value so we had to be sure that the interest was covered by the fund, so I wouldn't be required to fund the interest with my own money if the market was down in any particular year.
Once the cash value was above the level of the letter of credit, we wanted to change to a fund with a little more interest, so we got into one that is 12 and 0. We refinanced around the same time. Not sure if those two events are related or if we had to refinance for another reason, but he found us a 3% rate with a private lender using one of my properties as collateral.
The best part is that from day 1, if I was to die, my trust would get the insurance value minus the borrowed money, which was still a very substantial amount of money. And now, years later, the cash value is worth more than double the borrowed value, PLUS the entire insurance value. It was one of the best financial decisions I ever made. Where else can you legally make 7 figures without putting a dime of your own money in?
There are people that specialize in this that can give you a MUCH better explanation than I just gave you. If you are really interested, you should contact one of them.
I don't want to get into actual numbers on here, but if you want to DM me, I can go into more detail if you are interested.
Edit: And just to be clear there is a servicing fee on the letter of credit which is separate from the interest paid on the money that has actually been borrowed. But the servicing fee is not substantial.
The "using insurance as an investment vehicle" is a terrible investment and an old scam that many investment brokers sold to new docs coming out of residency.
That old scam has been shopped around to doctors for decades. When I came out of residency, those products were associated with Templeton Investments, in which the salesmen made HUGE COMMISIONS.
Perhaps you should talk to someone about those products, as very few, if any, legitimate feduciaries peddle that crap.
The "using insurance as an investment vehicle" is a terrible investment and an old scam that many investment brokers sold to new docs coming out of residency.
That old scam has been shopped around to doctors for decades. When I came out of residency, those products were associated with Templeton Investments, in which the salesmen made HUGE COMMISIONS.
Perhaps you should talk to someone about those products, as very few, if any, legitimate feduciaries peddle that crap.
Why do I feel like nobody is reading what I am writing? This is not what you think it is. It is available to wealthy people only, and many wealthy people do this. You need a very high net worth in order to qualify for a multi million dollar letter of credit with a very low interest rate. I have put zero of my own dollars into this. It was all done on borrowed money that has paid itself back years ago, and is now worth more than double the amount I borrowed. It is basically a legal "loophole" that allows you to invest borrowed money.
It is called premium financing. It is not a vehicle available to normal people that buy whole life insurance. It is not available to typical doctors, because the net worth required to qualify is too high. Especially doctors right out of residency. It wasn't my doctor's salary that qualified me for it, it was my real estate holdings.
I don't know how much the brokers made in commissions, and frankly, I don't care. Whatever it was, it was worth it, because I have made a lot of money, and I didn't put up a dime of my own money to get it. Not to mention, I got a huge life insurance policy for free, along with it. So if I got scammed by them, please, let them scam me some more.
Looking at a long term chart of the nasdaq and how far it went down during the 2000 tech bubble makes me wonder if it could bottom out at 5,000. I just don't think the central banks would let it get that low before starting more QE, but it's already come down from 16,000 to 11,000 which itself is rather impressive. It looks to me looking at the 30 year chart of it below that 10,000 is absolutely going to happen, and 8,000 is fairly likely to happen. Below that, who knows. The buildup to the bubble peak look almost identical though.
We have a lot more to fuel a possible recession going into 2023 than we had in 2000... ... China lockdowns, war in Russia, central bank tightening from the most massive injection of liquidity into the system in global history, along with a push by the new world order for green energy, great resets, and you know they are going to see how far they can push covid mandates when cases spike... it will be an all out battle with them to keep our freedoms. All this will fuel continued supply chain problems, higher prices, and the fact that nobody wants to do manual labor anymore and the progressives keep pushing for handouts paying people to not work, is just going to lead to more and more decay, lower and lower profit margins, lower EPS, decreased revenues.
I don't think we're going back up to 16K any time soon... this is a multi-year chart pattern that is playing itself out. The cycle needs to be allowed to conclude naturally now. It's healthier. No huge multi trillion dollar spending bills to inject more liquidity into the system. The drug addict now needs his withdraw. It might be painful but it's good for them. We don't even have the labor pool to get the people necessary to get all these spending projects done, a sign they are trying to print their way to prosperity. Time to force a recession.
Even after this selloff the market remains with some of the most lofty valuations since the 2000 tech bubble.. it's a testament to just how high covid stimulus drove the indexes.
I'm beginning to think this is going to be a multi-year grind downwards... that the bubble has popped and the central banks have no intention of re-inflating. They might have even planned this bubble out to further concentrate their wealth.
RIP... the bull market of 2008-2022. The cycle has concluded for now. Now we have the bear market grind that may take 2-5 years to play out... more likely 2-3. If we're really lucky it will take under a year and there will have been a forced deleveraging and flash crash that has us bottoming by October... then we can rebuild faster. If the central banks can rebuild properly without handing out free money like candy, maybe we can build a healthier economic base.
Why do I feel like nobody is reading what I am writing? This is not what you think it is. It is available to wealthy people only, and many wealthy people do this. You need a very high net worth in order to qualify for a multi million dollar letter of credit with a very low interest rate. I have put zero of my own dollars into this. It was all done on borrowed money that has paid itself back years ago, and is now worth more than double the amount I borrowed. It is basically a legal "loophole" that allows you to invest borrowed money.
It is called premium financing. It is not a vehicle available to normal people that buy whole life insurance. It is not available to typical doctors, because the net worth required to qualify is too high. Especially doctors right out of residency. It wasn't my doctor's salary that qualified me for it, it was my real estate holdings.
I don't know how much the brokers made in commissions, and frankly, I don't care. Whatever it was, it was worth it, because I have made a lot of money, and I didn't put up a dime of my own money to get it. Not to mention, I got a huge life insurance policy for free, along with it. So if I got scammed by them, please, let them scam me some more.
Are you sure you are talking about a Line of Credit?
The Line of Credit allows you to “borrow” at low interest against your Portfolio Holdings (in your case Real Estate holdings) without have to sell anything and then pay 28%+ Capital Gains Tax. I’m familiar with this through my Financial Advisory, but we are not invested in Real Estate - so that might be different.
Bottom line is avoiding be forced to sell assets in order pay high Capital Gains on Assets that have already been Taxed when you acquired them.
It’s worked out between Bank, Lawyer, Financial Advisor & CPA — the Capital Gains Tax ( which is forced on anyone with substantial assets) is a killer. Trusts are often part of the deal & you have protected your family with the Insurance policy if something should happen to you.
A Bank Letter of Credit is usually use in Commercial transactions. Ordered goods have to be paid for normally before they can be sold. A Letter Of Credit “guarantees” payment.
The market is still overinflated. Need to get all the QE money out of the way first to determine what the actual valuations are. Lots of CEOs pumped and juiced stock prices with free money and buybacks, now it's time for the haircut.
The worst part of all this is small businesses will get stepped on again after just recovering from Covid while the QE money is wrung out but these big Corps don't care, likely cheering small business callapose. Walmart taught us that it's easier to monopolize local markets once you get the Riff Raff out the way.
Another lost decade has arrived. Save up cash now to reinvest down the road.
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