A Better Way to Pay Property TaxJul 19, 2022
Ever wonder what could have been if you didn’t have to pay your property tax?
While we can’t (legally) avoid it, maybe there is a better way to pay property tax so that money isn’t just lost forever.
Price vs. Cost
When people buy things, they automatically default to what has the lowest interest charge. When thinking this way, the obvious best way to use money is to pay cash.
Folks are often very proud of the fact that they buy things (especially cars and college, for some reason) with cash.
However, this ignores an economic law:
"You finance everything you buy.
You either pay interest to someone else when you borrow money, or you give up interest you could have earned when you pay cash."
I was revisiting a financial model I created last year that I’m calling “Recurring Expense Funds.”
It crunches the numbers on two 30-year property tax scenarios:
- Saving up money in a bank then spending it to pay the tax every year for 30 years
- Capitalizing a dividend-paying whole life insurance policy for 5 years then using policy loans to borrow and pay-back the money used to pay the tax every year for 30 years
The results are a perfect example for comparing price vs. cost.
Paying $10k/yr in property tax, for example is the “price” of the tax bill. However, the actual “cost” of those taxes is the interest that was given up on the money used to pay the tax over 30 years.
The price is $300,000 over 30 years
The (net compound) cost, assuming a modest 4% interest rate, is almost twice that, $560,000.
So how do we reduce the real cost of paying all this property tax for 30 years?
Recurring Expense Funds
By creating a virtual “fund” inside a cash value life insurance policy, we only fund the tax once, then policy loans are used to leverage that same cash over and over again, forever.
Since I'm borrowing against the cash value, not taking the money out to pay the tax, my cash, at the same time, continues to earn ~40x that of a typical bank.
This one move creates an incredible improvement on my financial position relative to this money.
How incredible? How about a 1,200% increase in net present value over 30 years.
The way I see it, while most people are taking risk in the hopes of a 10%-12% average rate of return, imagine the effect of making 1,200% improvements on all the large recurring outflows you’ll have over the course of your life.
This is Infinite Banking®