Blog

What is a Self Directed Individual Retirement Account and Why Should You as a REO Professional Care?

First, you need to know what an individual retirement account is before you can truly appreciate what a self directed individual retirement account is.

Per the Internal Revenue Service, you basically have two types of individual retirement accounts. Those are Traditional IRA or Roth IRA.

A Traditional IRA is just a way for you to save money for retirement with tax advantages. Some of those advantages are tax deductions for contributions and the fact that generally speaking, you aren’t taxed on those earnings and gains till the money is distributed. For more information on IRA, please visit the IRS website here: http://www.irs.gov/Retirement-Plans/Traditional-IRAs

A Roth IRA is a IRA with a few exceptions. Some of those are…..

1. You can’t deduct contributions to a Roth IRA

2. You can contribute to your Roth IRA after age 70

3. You can leave amounts in your Roth IRA as long as you live

My list of exceptions above is not a complete list. For a complete list of exceptions, visit the IRS website link here: http://www.irs.gov/Retirement-Plans/Roth-IRAs

Now, the biggest single difference between a IRA and a SDIRA or Self Directed IRA is the fact that a IRA is set up with a bank, life insurance company, mutual fund or stock broker whereas with a SDIRA, they are set up with a Trustee. This difference is very important for you to understand because, this difference goes t the very nature of what makes a SDIRA so different than a IRA.

You see, with a Traditional IRA or Roth IRA, the bank or organization you set it up with manages the money for you. Your bank will have different funds that you can pick from and those funds have all kinds of disclosures, prospectus and degree of expectations on performance. Sure, no investment is ever 100% safe and anytime you invest, you really should know your risk however, my point is, you aren’t doing any leg work. The bank you set up your IRA is doing everything for you and all you had to do was pick the fund to put your money in. This is where a SDIRA is different.

As I said before, with a SDIRA, you set up your account with a Trustee. This Trustee is nothing more than a place to hold your money. They do not offer you investment advice and they don’t make investments on your behalf. They aren’t going to send you a list of funds you can choose from….because they don’t have any. You aren’t going to get a prospectus telling you what to expect when you invest because, they have nothing for you to invest directly in. Think of the Trustee as a holding house for your money. That is really all they are. There purpose is to be a middle man between you and your retirement money. The reason they exist is to provide transparency, accountability and to enforce regulations over your money.

Finally, with a SDIRA, you don’t make money unless you get out there and invest it. Like I said, the Trustee is nothing more than a holding house, they don’t make investment on your behalf so, if you don’t get out there and find opportunities to invest in, your money will not make gains, it won’t grow. This is the attraction for many because it gives the owner of the money much more control of what gets invested in and likewise, the possibility for much greater gains……with much greater risk.

For many who decide to get a SDIRA, the typically already have substantial experience in one of the areas of allowed investments. For example, I am a Realtor and I have access to many different tools and substantial experience that allows me to assess value on real property pretty accurately. I can use my tools and experience to invest my SDIRA funds into real estate. That’s right, real estate is just one of the many SDIRA investment options. As a Realtor, naturally I would be drawn to invest my retirement in real estate that will create gains and grow my retirement funds, using my own knowledge and experience. The reason I do this is because, I realized I can use my expertise in my career field and create gains for my retirement much more substantially than some bank, insurance company, mutual fund or stock broker every could.

Granted, some people don’t have any experience in one of the approved investment areas however, those people partner with experienced investors in the field of interest they want to invest in. For example, maybe the only experience you have in real estate is buying and selling your own home however, you would like to invest in real estate. What you would need to do is find a real estate investor who has a proven track record of success and let them teach you. Maybe you know a Realtor who has a proven track record of success that would be happy to get out there and find you money making opportunities to invest in? My point is, just because you may not have experience in a particular investment opportunity, don’t let good opportunities pass you by. You can always find the expertise you need, just stand up and look around.

Finally, it’s important to know that I am not an Investment Advisor, Attorney or Tax Professionals. I am a Realtor who has used my own SDIRA to invest in real estate. What you have read above is my own experience and opinion and you should not consider it Investment, Legal or Tax advice because, it’s not. If you need Investment, Legal or Tax advice, go seek out licensed and insured professionals in your state.

To join a social network of other like minded investors, visit www.MatherNetwork.com

Like many Affiliate Brokers, at some point in our careers we determine it's time for us to go out on our own and do our own thing. Now, that time has come for myself however, I don't have the personal funds I need to start my own office. Like many others I need money. You can get money all kinds of different places however, banks seem to be the most obvious choice for most of us. In fact, I myself have seriously considered my local bank, the one I actually use for my personal money but, I am almost completely debt free and I really don't want to acquire additional debt through traditional means. Without saying it, yes.....I listen to a famous particular radio broadcaster who is known and preaches about living debt free and yes, I am trying to do just that however, I know that some debt is good. In this case, this is debt I can take on that will further my long term goals.

Now, with all that being said, let me just say, for those of you who do traditional lending...banks, etc.... I am not saying not to use you. In fact, I believe you have a valuable place in the market place and do good by lending dreamers like myself the funds we need to bring our plans into reality however, I just don't think that type of lending is a good fit for me.

So, my next option are Investors and let me tell you, I have found out in the past 2 months, not all Investors are created equal. I learned about debt partners, joint venture partners, equity partners, etc... and for a while, it all had my head spinning.....really spinning. Now however, I feel a little better and I can actually say, I think I know what I want. I think what I am looking for is a Self Directed IRA Investor who is prepared to invest in a LLC as a Debt Partner. Now, where do you find them, how do you connect with these people? That is the question.

Several IRA Custodians have reached out to me in the past couple weeks because many of my blogs have revolved around this idea. Truthfully, I really don't know why more of us, especially those of us in the REO industry aren't completely and utterly schooled in this type of investing and likewise, making it work for ourselves but, that is another blog for another time. None the less, these IRA custodians, due to heavy regulations, can't just come out and say, or do for that matter, "we want to invest in your company". So, how in the "h""e" double hockey sticks to you find these investors?

So, here is the goal. I need a Self Directed IRA Debt Partner Investor who wants to invest in a real estate brokerage focused on Traditional buying, selling and investing, distressed homeowners / REO / Short sales and the Self Directed Private Banking Concept. Anyone out there know of anyone? IF you do, please send them my way, I want to talk with them, I want to send them our business plan, I want to earn their investment. Granted, I don't need a lot, less than 50k so, even a "small time investor" would be cool.

If you don't know how to use your IRA to invest in a LLC, ask me. I can guide you to resources that will educate you, people who can offer you insight. If the only thing stopping you is that you don't know enough about it, don't let that stop you from picking up the phone and calling me because, I can help guide you.

Self Directed IRA Network??

Well, as many of you know, for the past couple months I have really been digging deep into the self directed IRA world and I have to admit, I am truly disappointed. Here I was expecting a world filled with information, people everywhere willing to share, professionals offering advice and services however, I ended up finding a world almost as closed off as REOs. After further investigation, I started to realize that it's not closed......it's just not open. In other words, no one has blown it up. Well, that got me thinking, why not REOPro, why not me?

Here is what is going to happen. Here in the next few weeks, likely right at the start of the new year, I am going to start a social network for self directed IRA investors and professionals. Like REOPro, it's going to offer people the opportunity to come together, freely share information, ideas, resources through blogs, forums, video sharing, picture sharing, on-line chat and, much more.

What we need now are advertisers. Unlike REOPro, I don't want to stay in constant debt with this new network, in fact I am thinking of having some portions of the site closed and only open to paying members however, I am curious as to just how many people may be interested in something like this. I am thinking of a really low annual fee, like $5.00 a year....really low but, keep in mind, I am not trying to get rich of my site, just trying to pay the site bills.

What we need now is some "pre" advertisers. We need to get some people on board who would be willing to pay to have their banner randomly rotating across the top of the site. I will only have 3 opportunities...that's it. Similarly to REOPro, the three banners will rotate randomly on a 30 second interval and no, we aren't fancy enough to see how many people click your ad and all those other tracking things but, if you put in a promo code in your ad, you can track it that way. No contracts, no required length....very simple, $200.00 a month, pay 3 months in advance, if you decide to leave, we will refund the prorated remaining balance to you in full.

If interested in this new network to launch in January 2013, let me know, email me at JGonzalez@RealTracs.com

The market is always changing and as such, I have learned that I too need to always be changing or at least growing. With that being said, for the past 3-4 months, I have been doing a lot of reading on self directed IRAs. More specifically, the "Private Bank Concept" within the self directed IRA industry. Honestly, this concept amazes me, in fact, I am struggling to understand why more of us in the REO industry aren't cornering this market.

I guess first off, I had to realize that many people don't even know they have the ability to direct their own IRA. I had read somewhere that 3.4 trillion dollars is setting in IRA funds right now across this country and most people (like 99%) aren't making more than 1-2% annually.....if that. Granted, most of these people have their money with some investment firm who has the money diversified in stocks, bonds or mutual funds and they make money by managing those funds for you so, it's not in their interest to tell you, "hey, did you know you can do this better on your own and save the money you are paying us?" so, most of you don't know anything about self directed IRAs. Don't feel bad, as of 3-4 months ago, I didn't either. I don't even remember how or who told me about them so, I can't even source or thank anyone for directing me to this awesome opportunity.....sad but, true.

At this point, it's important to tell you, I am a Realtor, not an Investment Adviser, not a Certified Public Accountant and most definitely not an Attorney (no offense). I am simply a Realtor who is looking to drum myself up more business, make more money and start my own brokerage by the start of 2013. Like any good small business owner, I need to find capital however, I don't want to be tied to the SBA (Government Secured Loans) or tied to a bank, personally, I would like to work with individual investors however, it's tricky. Yeah, I have a proven track record and yeah, I have a great business plan...as told to me by my SCORE counselor but, it's not easy to convince someone to give me their money to grow my business and in return, I will give them their money back plus interest. Let's face it, money is tight these days for us all however, what if I was able to tap into money you aren't using to pay your day to day bills? Ok...so, who isn't living paycheck to paycheck, I get that but, some of us worked hard enough that we have nearly 3.4 trillion dollars that isn't doing much for us and my thinking was, how could I convince people to give me some of that money. My thinking was, what if I told potential investor, Priscilla Penny Pincher that I was able to find a real estate investment (flip) that would net her a 10% return on her retirement money, why would she say no? Ok....yes, I am sure you can think of many reasons to say no but, really.....10% return in 6 months on money that is making 1% return in 12 months, it's a no brainer, right?

Well, that is where the Private Bank Concept with self directed IRA funds comes into play. It's nothing more than a strategy that real estate investors are using to complete more deals than ever before. Basically, it allows me to borrow money from an individual...not a bank, to do my flips with while paying the individual back the money borrowed plus a interest rate triple, quadruple or even quince the rate they are currently getting on the money.

Yes, it's risky, it's real estate and yes, we can't guarantee anything but, we can reduce risk by implementing strong, robust loss mitigation and exit strategies so, risk is minimized. Let's also not forget, the loan you are providing me is secured by real estate....real property so, it's not like you're going into this with no collateral.

So, here I am, learnded (yes, that is my Honey Boo Boo term for the day) about this Private Bank Concept and all I need now are the funds however, I am curious, are any of my REOPro member doing this already? If so, let me know, let's talk, let's exchange resources, let's work on creating our own Private Bank!