A lot of the people I work with invest in real estate, and many of them fix and flip houses. When you're starting out, the easiest money is usually a hard money lender. That's a private lender who funds short-term real estate deals based mostly on the property, not your income. You'll usually pay somewhere around 12% to 15% interest, sometimes more, plus points. A point is an upfront fee equal to 1% of the loan. And the loan comes with a deadline, often a year or less.
If you can turn a flip quickly, the profit covers that cost. Sometimes a hard money loan is the right tool, especially early on. But think about year 20 of your investing. Do you still want to hand a lender thousands of dollars of profit on every deal? I made a video for flippers on replacing hard money lenders with a policy because so many of the investors I work with ask about it.
Say you borrow $150,000 for six months at 12% with two points. The points cost $3,000 at closing, and six months of interest costs $9,000, so the money costs you about $12,000 before you sell. Now say you borrow the same $150,000 against your cash value at 5%. Six months of interest comes to about $3,750, with no points and no fee. On that one flip, about $8,000 more stays in your pocket. Policy loan rates vary by carrier and by year, so plug in your own policy's rate.
A policy loan is different in a few other ways. There's no approval process, and nobody asks what the money is for, so it can land in your account within days. The carrier sends a yearly notice of the interest due, but you don't have to pay it on a set schedule. Interest you don't pay gets added to the loan. And the loan is borrowed against your cash value, so the cash value stays in the policy and keeps earning while the loan is out. Some policies credit the borrowed portion at a different rate, so ask how yours handles it.
The flexibility matters most when a deal goes sideways. If the market drops and a flip that should have sold in four months sits for two years, a hard money lender still wants its money on the due date. A policy loan has no due date. You'd still owe the interest, and you'd want a plan to pay it back, but nobody forces you to sell at the worst possible time. Setting your own payback schedule covers how to build that plan.
Your business may be able to deduct the interest it pays on money you lend it, while the cash value keeps growing tax-deferred inside the policy. The rules on deducting interest depend on how the money is traced and used, so have your CPA set it up before the first deal. I'm a licensed insurance broker, not a CPA.
Building a big enough policy takes years. A well-designed policy can have a large share of its first-year premium available as cash value, but a pile big enough to fund a flip takes time, and you'll probably still use hard money on some deals while it grows. If you're borrowing everything the policy has and still need more, that tells you to keep building, and hard money can fill the gap in the meantime. Keep in mind that a policy loan reduces your cash value and death benefit until it's repaid, so a flip that loses money still leaves a loan to pay back. Keep a one-page ledger of every loan you take so you always know where each deal stands.
If you flip houses now, add up what you paid in hard money interest and points on your last three deals. That total gives you a starting target for how much cash value you'd want to build.