A cash buyer
IllustrationHow a founder kept half his capital instead of wiring all of it
He was ready to send $7,000,000 to escrow. He sent $3,500,000 instead and kept the rest working.
- Sent to escrow
- $3,500,000instead of $7,000,000
- Capital kept
- $3,500,000on the day of closing
- From year 16
- $647,500a year, projected
The situation
He had the cash and disliked debt. His instinct was to wire $7,000,000 and own the house outright. His advisors pointed out what that would do: move about a third of his capital into a single asset that produces no cash, at a time when the business still needed room.
The structure
He sent $3,500,000 to escrow: $1,400,000 as a down payment and $2,100,000 to a policy on his wife’s life, with a bank financing further premiums. A lender provided a $5,600,000 interest-only mortgage. The other $3,500,000 never left his accounts.
From year sixteen the policy is projected to provide $647,500 a year against a mortgage payment of $570,709 a year, and to continue after the loan is repaid in year thirty.
What it gave him
$3,500,000 stayed liquid from the first day, available to the business. He pays $28,466.67 a month, interest only, for fifteen years.
From year sixteen the policy is projected to make the mortgage payments and, after funding them, to return $21,871,869 to him between years sixteen and 62.
How it was underwritten
He disliked debt, so the structure was built conservatively. It was underwritten as one transaction, modeled across many market paths, and sized so that projected policy cash of $647,500 a year stands against $570,709 of mortgage payments. The bank loan behind the policy has a planned exit around year fifteen, and the plan is reviewed every year.
Why it suited him
He valued liquidity over owning outright, and he had a use for the capital. The purchase was the same purchase. Only the way it was paid for changed.
The numbers
Line by line
This comparison does not credit any return to the capital you keep, and it does not charge one to the capital you commit.
Illustration. Both cases assume a 6.1% mortgage note rate, a 20% down payment, and no investment of money kept or saved. The program’s projected policy cash is a quoted figure scaled to the policy contribution; it is not derived by this model and is not guaranteed. The base case assumes no further personal premiums, financing interest or bank-exit payments. Property taxes, home insurance, maintenance, closing and advisory costs and tax effects are excluded.
How each line is calculated
- Traditional payment. Principal × r ÷ (1 − (1 + r)−360), where r is the annual rate divided by 12.
- Program, years 1 to 15. Principal × r. Interest only; the balance stays at $5,600,000.
- Program, years 16 to 30. The full $5,600,000 amortized over the remaining 180 months, which is why the payment is 67% higher than in the first fifteen years.
- Projected policy cash. $370,000 a year on a $1,200,000 contribution in the reference case, scaled in proportion. It covers 113% of the later mortgage payment as illustrated.
- Total you put in. Initial capital plus every mortgage payment not funded by projected policy cash.
Their cash position, year by year
Everything paid in, less projected policy cash received.
By qualification
Find out if it is open to you.
Three ranges tell you where you stand against the published criteria. If you meet them, Kent Chesley will speak with you personally.
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