investing your ira when your income is high but your balance is low
DESCRIPTION
You've been hearing a lot about about self-directed IRA s and real estate. You're intrigued. You can think of all kinds of real estate investments you'd use your self-directed IRA for. The only catch? You don't have much money in your IRA yet. Most IRA investors pay all cash for a property or they have to borrow 50-65% of the purchase price at rates 3-4% higher than conventional interest rates. Paying high interest rates inside your IRA can potentially erode your cash flow and decimate your returns. So, what do you do while you're building up a balance inside your IRA? How can you take advantage of today's amazing real estate market if you don't have the resources inside your IRA to make a 35-50% down payment or pay all cash for a property? Watch this 60 minute training video and find out! Kaaren Hall president of uDirect IRA Services www.uDirectIRA.com and professional investor David Campbell www.HasslefreeCashflowInvesting.com will show high income earners how to use a self-directed IRA to create amazing real estate profits -- even starting with a small balance. In this 60 minute FREE webinar you'll learn: 1) how to make IRA profits as a high income earner starting with a relatively small self-directed IRA 2) deferred down payment strategies used by savvy IRA investors to double their returns and lower their risk 3) how to buy a $1,000,000 property inside your IRA with as little as $10,000 down 4) the benefits and pitfalls of owning and financing "low money down properties" inside your IRA 5) when your IRA should own positive cash flow properties and when positive cash flow sucks 6) how easy it is to use a self-directed IRA to maximize your profits while minimizing your tax bill 7) where to find non-recourse IRA financing at low interest ratesTRANSCRIPT
www.HasslefreeCashflowInvesting.com
Investing Your Self-Directed IRA
When Your Income is High but
Your Balance is Low
Fourth Dimension Real Estate, Inc.
David Campbell - CEO
www.HassleFreeCashflowInvesting.com
uDirect IRA Services
Kaaren Hall - President
www.uDirectIRA.com
David Campbell - FounderHassle-Free Cashflow Investing
David Campbell - FounderHassle-Free Cashflow Investing
Former high school band director Self-made multi-millionaire
Real Estate investor / developer / broker+$800 million in transactional experience Financial educator / author / speaker
Houses, condo-conversion, multi-family, winery, resort, office, retail, medical office, production home building
Faculty Member: Investor Summit at Sea with Robert KiyosakiRegular Contributor to the Real Estate Guys Radio Show
Former high school band director Self-made multi-millionaire
Real Estate investor / developer / broker+$800 million in transactional experience Financial educator / author / speaker
Houses, condo-conversion, multi-family, winery, resort, office, retail, medical office, production home building
Faculty Member: Investor Summit at Sea with Robert KiyosakiRegular Contributor to the Real Estate Guys Radio Show
www.HasslefreeCashflowInvesting.com
www.HasslefreeCashflowInvesting.com
HusbandFather
Musician
Compelling Compelling WHYWHY
www.HasslefreeCashflowInvesting.com
Today’s agenda
•when your IRA should own positive cash flow properties and when positive cash flow sucks• IRA profits as a high income earner starting with a relatively small self-directed IRA•deferred down payment strategies•the benefits and pitfalls of owning and financing “low money down properties” inside your IRA•how easy it is to use a self-directed IRA to maximize your profits while minimizing your tax bill•where to find non-recourse IRA financing at low interest rates
•• Kaaren Hall, PresidentKaaren Hall, President
•• uDirect IRA Services, LLCuDirect IRA Services, LLC
•• (866) 538(866) 538--35393539
•• [email protected]@uDirectIRA.com
uDirect IRA Services, LLC2522 Chambers Road, Ste 100
Tustin, CA 92780
• Stay to the end for a FREE report
• Using a Solo 401k to avoid UDFI
Begin with end in mindBegin with end in mind
��RELATIONSHIPSRELATIONSHIPS
��IDEASIDEAS
��OPPORTUNITIESOPPORTUNITIES
��NOT a sales pitchNOT a sales pitch
��NOT investment, legal, or tax adviceNOT investment, legal, or tax advice
STRESS isSTRESS is
when your when your expectationsexpectations
dondon’’t match your t match your realityreality
““Stress / distress is not created by a property; Stress / distress is not created by a property;
it is created by an ownerit is created by an owner’’s relationship to a property.s relationship to a property.””
--David CampbellDavid Campbell
DO YOU HAVEDO YOU HAVE
MISMATCHED?MISMATCHED?
expectationsexpectations
resourcesresources
teamteam
philosophy philosophy
emotional staminaemotional stamina
time horizontime horizon
strategystrategy
tacticstactics
Essential ResourcesEssential Resources
★ cash
★ cashflow
★ credit
★ equity
★ time
★ talent
★ strategic relationships
★ control of an opportunity
Typical IRA
THIS IS WHERE
THE PROFITS ARE
and why we self-direct
www.HasslefreeCashflowInvesting.com
““Main StreamMain Stream”” Sources of Passive Income Sources of Passive Income
are Not an Optionare Not an Option
��Bonds and CDs do not outpace inflationBonds and CDs do not outpace inflation
��Stock market risky & unpredictableStock market risky & unpredictable
�� (ERISA withdrawal/ manipulated)(ERISA withdrawal/ manipulated)
��High risk of hyperHigh risk of hyper--inflationinflation
Cashflow in your IRA?
Cashflow in your IRA?
IRA CASHFLOW SUCKS
Higher cashflow = lower ROIInvesting transaction expensesIRA transaction expensesDecision making / time costYour contributions = cashflow
Cashflow in your IRA?
IRA CASHFLOW ROCKS
great for distribution erabetter than bonds / CDsbalancing a negative cashflowordinary income tax deferral
Cashflow in your IRA?
Cashflow Does NOTnecessarily correspond with RISK
Deferred Down Payment
When you don’t have a down paymentWhen you don’t need cashflow but the seller doesWhen the leverage enhances your returns
CAP > interest rate• $100,000 price
• $7,000 NOI
• 7 CAP
• $100,000 debt at 5% = $5k
• $7k income = $2,000 profit
Small IRA?
Small IRA?
Group investmentsPartnershipsLeverage future contributionsHigh LTV financingDeferred downpayment
What about amortization?
• $100,000 debt at 5% = $5,000 interest
• $7,000 NOI - $5,000 interest = $2,000 PROFIT
• If amortization is less than $2,000 then positive cashflow
• If amortization is greater than $2,000 then negative cashflow
What situation is appropriate
FOR YOU?
• There is no such thing as a good property or bad property / investment
• There is only appropriate and inappropriate ownership and timing.
Pitfalls of low money down inside your IRA
Increased probability of cash callInability to meet cash call = LOSSUnrelated Debt-Financed Income TaxMaximum contribution limits Inability to deduct losses in current yearLess benefit from high depreciation
Non-recourse = higher ratesGetting non-recourse debt at low rates
IRA debt needs to be non-recourse TO YOU
Investment partnersGroup investmentsSeller financingInstallment saleInvestment grade
tenantsBlended interest rates
•• How to SelfHow to Self--Direct Your Retirement SavingsDirect Your Retirement Savings
•• uDirect IRA Services, LLC is not a fiduciary and does not renderuDirect IRA Services, LLC is not a fiduciary and does not render tax, legal, tax, legal, accounting, investment, or other professional advice. If tax, leaccounting, investment, or other professional advice. If tax, legal, accounting, gal, accounting, investment, or other similar expert assistance is required, the investment, or other similar expert assistance is required, the services of a services of a
competent professional should be sought.competent professional should be sought.
SelfSelf--DirectionDirection
Why HavenWhy Haven’’t I Heard About This?t I Heard About This?
••Few attorneys are knowledgeable Few attorneys are knowledgeable
––About selfAbout self--directed plansdirected plans
••Few CPAs are knowledgeableFew CPAs are knowledgeable
––About selfAbout self--directed plansdirected plans
••IRS rules have allowed selfIRS rules have allowed self--direction since direction since IRAs were created in midIRAs were created in mid--1970s1970s
WhatWhat’’s the Difference?s the Difference?
•• Typical IRATypical IRA
•• StocksStocks
•• BondsBonds
•• Mutual FundsMutual Funds
•• CDCD’’ss
SelfSelf--Directed IRADirected IRA
•• Rental PropertyRental Property
•• NotesNotes
•• Private StockPrivate Stock
•• LLCLLC’’ss
•• Tax LiensTax Liens
•• Foreign PropertyForeign Property
•• Raw LandRaw Land
•• Etc.Etc.
What About Losses?What About Losses?
•• LossesLosses
•• Cannot be Cannot be written offwritten off taxestaxes
•• Cannot be Cannot be replacedreplaced in the retirement planin the retirement plan
What Are The Limits?What Are The Limits?
•• A SelfA Self--Directed IRA can invest in anything EXCEPTDirected IRA can invest in anything EXCEPT
1.1. Life Insurance PoliciesLife Insurance Policies
2.2. CollectiblesCollectibles1.1. ArtworksArtworks
2.2. CoinsCoins
3.3. Collectible CarsCollectible Cars
4.4. AntiquesAntiques
5.5. GemsGems
6.6. StampsStamps
7.7. RugsRugs
What if your funds are with your What if your funds are with your
current employer?current employer?
Your plan will probably NOT allow you to self-direct
Must wait until you leave the companyTo rollover retirement plan
You can request an “in-service” transfer from your current plan administrator.
Prohibited TransactionsProhibited Transactions
(IRS Publication 590)(IRS Publication 590)
••Borrowing money from the IRABorrowing money from the IRA
••Selling property to it.Selling property to it.
••Using it as security for a loan.Using it as security for a loan.
••Buying property for personal use (present or Buying property for personal use (present or future) with IRA funds.future) with IRA funds.
Disqualified PersonDisqualified Person
••Disqualified persons include your fiduciary and Disqualified persons include your fiduciary and
members of your family (spouse, ancestor, lineal members of your family (spouse, ancestor, lineal
descendant, and any spouse of a lineal descendant). descendant, and any spouse of a lineal descendant).
Qualified PersonsQualified Persons
••Aunts & UnclesAunts & Uncles
••CousinsCousins
••Brothers & SistersBrothers & Sisters
••Unrelated friendsUnrelated friends
••Nieces & NephewsNieces & Nephews
Prohibited TransactionsProhibited Transactions
••Neither you nor any disqualified people may Neither you nor any disqualified people may
benefit from IRA benefit from IRA
••Cannot buy, sell or exchange property Cannot buy, sell or exchange property
between plan and between plan and
––Self or Self or
––Disqualified peopleDisqualified people
••Cannot provide goods, services or facilitiesCannot provide goods, services or facilities
SelfSelf--Directed IRA Directed IRA -- StructureStructure
••YouYou
••Your IRAYour IRA
••TPATPA
••CustodianCustodian
Buying Real Estate With Your IRABuying Real Estate With Your IRA
•• ProsPros
1.1. Capital gains are tax freeCapital gains are tax free
2.2. Positive cash flow is tax free Positive cash flow is tax free
3.3. No time limit for holding propertyNo time limit for holding property
4.4. IRA can borrow moneyIRA can borrow money
–– Leverage your investmentLeverage your investment
5.5. Potential to earn a larger rate of return on Potential to earn a larger rate of return on
invested capitalinvested capital
Buying Real Estate With Your IRABuying Real Estate With Your IRA
•• ConsCons
1.1. No tax advantages of owning real estate No tax advantages of owning real estate
2.2. No deduction for capital lossesNo deduction for capital losses
3.3. You are solely responsible for all gains or You are solely responsible for all gains or
losseslosses
4.4. You cannot replace lossesYou cannot replace losses
Your IRA Can Take A Loan!Your IRA Can Take A Loan!
••Loan must be Loan must be
•• nonnon--recourserecourse
––Upon default, lender can seize subject property Upon default, lender can seize subject property
onlyonly
••Upon default, lender cannotUpon default, lender cannot
––Seize other IRA plan assetsSeize other IRA plan assets
––Seize your personal assetsSeize your personal assets
NonNon--Recourse LoansRecourse Loans
••Few lenders to choose fromFew lenders to choose from
––Must be a portfolio loanMust be a portfolio loan
––Cannot be sold on the secondary market Cannot be sold on the secondary market
••Larger down payment requiredLarger down payment required
––40% to 45%40% to 45%
••Cannot personally guarantee the loanCannot personally guarantee the loan
Personal GuaranteesPersonal Guarantees
••Personal guarantees by the IRA owner not permittedPersonal guarantees by the IRA owner not permitted
••Can be personally guaranteed by a third partyCan be personally guaranteed by a third party
––Must not be a Must not be a ““disqualifieddisqualified”” personperson
––Disqualified people areDisqualified people are
••AscendantsAscendants
••DescendantsDescendants
••Spouse and selfSpouse and self
••And othersAnd others
UDFI UDFI
••Unrelated Debt Financed Income taxUnrelated Debt Financed Income tax
••Any property held to produce income is debtAny property held to produce income is debt--
financed property if at any time during the financed property if at any time during the
tax year there was acquisition indebtedness tax year there was acquisition indebtedness
outstanding for the property.outstanding for the property.
UBITUBIT
••Unrelated Business Income TaxUnrelated Business Income Tax
••If a tax exempt entity engages in a business If a tax exempt entity engages in a business
that is unrelated to its primary purpose, any that is unrelated to its primary purpose, any
income derived from such business will be income derived from such business will be
subject to UBITsubject to UBIT
••IRS Pub 598IRS Pub 598
••UDFI & UBIT are reported on form 990UDFI & UBIT are reported on form 990--TT
Buying Real Estate Buying Real Estate -- The ProcessThe Process••Open a selfOpen a self--directed accountdirected account
••Shop for a propertyShop for a property
••Remember, itRemember, it’’s the IRA that is the buyers the IRA that is the buyer
••Custodian to sign Custodian to sign ““Offer to PurchaseOffer to Purchase””
••Submit a Buy Direction Letter for earnest money Submit a Buy Direction Letter for earnest money
depositdeposit
••Funds wired to closing from your IRAFunds wired to closing from your IRA
••Fund & RecordFund & Record
••Rents are made payable to your IRARents are made payable to your IRA
What if the IRA depletes its What if the IRA depletes its
reserves?reserves?
1.1. Make your yearly contributionMake your yearly contribution
2.2. Liquidate other assets in the IRALiquidate other assets in the IRA
3.3. Transfer money from other retirement Transfer money from other retirement accountsaccounts
4.4. Bring on a partnerBring on a partner
–– Not a disqualified personNot a disqualified person
5.5. IRA can get a loanIRA can get a loan
6.6. Sell the assetSell the asset
IRAIRA--Owned LLCOwned LLC
““Checkbook IRACheckbook IRA””
••IRA purchases shares of a newlyIRA purchases shares of a newly--formed LLC formed LLC
formed for this purposeformed for this purpose
••LLC receives funds in itLLC receives funds in it’’s checking accounts checking account
••LLC follows same rules as IRA for investingLLC follows same rules as IRA for investing
3 Types of Plans3 Types of Plans
•• IRAsIRAs
–– Individual Retirement AccountsIndividual Retirement Accounts
––What you are doing for your own retirementWhat you are doing for your own retirement
••Qualified PlansQualified Plans
––ERISA controlledERISA controlled
––Typically, what an employer provides youTypically, what an employer provides you
••Other PlansOther Plans
––EducationEducation
––HealthHealth
Types Of SelfTypes Of Self--Directed PlansDirected Plans
IRAsIRAs Qualified PlansQualified Plans Other PlansOther Plans
TraditionalTraditional 401K/ 457/ 403b401K/ 457/ 403b CoverdellCoverdell
RothRoth Defined BenefitDefined BenefitHealth Savings Health Savings
AccountAccount
SEPSEP Profit SharingProfit Sharing
SimpleSimple Individual KIndividual K
SpousalSpousal
How Do I SelfHow Do I Self--Direct?Direct?
1.1. Complete an applicationComplete an application
1.1. Provide copy of driverProvide copy of driver’’s licenses license
2.2. Copy of statementCopy of statement
2.2. Fund your accountFund your account
1.1. Annual ContributionAnnual Contribution
2.2. TransferTransfer
3.3. RolloverRollover
3.3. Tell us what you want to invest inTell us what you want to invest in
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www.HasslefreeCashflowInvesting.com
www.uDirectIRA.com
Questions / CounselingQuestions / Counseling