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oday, we're answering your real estate questions, starting with how to know if a deal is too good to be true and the importance of thorough due diligence before investing. We'll also discuss all-in-one loans for mortgages and variable universal life insurance.
Too Good to Be True Returns and Real Estate Syndications
A listener asked about Mortar Group's 16%-22% annual returns, which seemed suspiciously high. Dr. Jim Dahle explained that while Mortar Group is a reputable sponsor, no investment is risk-free. He emphasized the need for caution when considering private real estate investments, especially those with unusually high returns.
To approach private real estate investments, decide if you want real estate in your portfolio and choose between public options like REITs and private options like syndications. If choosing private, consider individual syndications, funds, or direct property ownership. Funds offer diversification, while individual syndications carry higher risk unless you own several.
Dr. Dahle warned that minimum investments are typically high, around $50,000-$250,000, so true diversification requires significant wealth. Being an accredited investor means not only meeting income and net worth requirements but also being capable of evaluating the deal yourself and losing the entire investment without major financial harm.
When it comes to expected returns, debt investments generally yield 7%-11% and are more stable, while equity investments aim for 10%-15%, though returns can sometimes be much higher or lower. Some syndications target 16%-22% returns, but these are not guaranteed and may result in complete loss if the operator mismanages the property.
All-In-One Loans for Mortgages
A listener asked about all-in-one loans that combine a home equity line of credit (HELOC) with a sweep checking account. Dr. Dahle explained that this setup allows your everyday cash flow to work harder for you, potentially saving interest. However, he cautioned that the benefits are often overhyped and may not be worth the added complexity.
Dr. Dahle prefers financial simplicity and believes that financial success comes from earning a high income, saving a substantial portion of it, investing wisely, and giving it time to grow. He doesn't use an all-in-one loan and wouldn't even if he had a mortgage.
Group Variable Universal Life Insurance as a Work Benefit
A listener asked about a group variable universal life policy offered by their employer, which allows them to buy down coverage and direct the resulting cash value into the policy. Dr. Dahle explained that these arrangements are often marketed to employers but can be confusing and potentially poor financial decisions for employees.
He recommended caution when dealing with these policies, especially if you're contributing a significant portion of the premium. Permanent life insurance is generally only useful if you truly need lifelong coverage, which most people don't. If you become financially independent in your 40s or 50s, term life insurance is far more cost-effective.
Milestones to Millionaire
Today's episode features an ER doc who has gotten his financial life in order by hiring a trustworthy financial advisor and realizing how much he didn't know. He shared his journey of building wealth and becoming work optional by 50.
