Rob Rose of Danville offers free assistance with self directed IRA
I was at the coffee shop the other day and began a conversation with a guy I see there everyday.
To make a long story short, after the “how you do’s” he told me he’s an accountant and asked me what I do. I told him I’m a real estate broker but for the last five years I’ve been flipping houses. He got real excited and had lots of advise, but the best part was when he said “the smartest people I know do self directed IRA’s” I smiled and let him talk.
He went on to say, know body does them because they aren’t a where of what they are. He asked me, have you ever heard of them? I told him I have been directing my own IRA for the last four years, I don’t think he fully believed me until I went into the details that only a person with knowledge of self Directed IRA’s would know.
Point is, an accountant who has his own accounting company in Danville California for nearly 40 years says “the smartest people he knows direct their own IRA’s”.
My name is Rob Rose and I am an expert at assisting people with investing in real estate using their self directed IRA. I will guide you with the necessary step’s you will need to take to set up your IRA. Once in place you will be in complete control of your money, not me.
There are dozens of caveats on how to do it, and the specter of running afoul of the Internal Revenue Service looms large. (And to be clear, this is still a niche, with only about 2 percent of the $4.8 trillion in I.R.A.’s in self-directed accounts, according to Equity Trust, one of the big players in the industry.)
Recently, a lawsuit was filed against two custodians of self-directed I.R.A.’s, the Equity Trust Company and the Entrust Group, accusing them of failing to do due diligence on investments, even though that is something that custodians do not do.
Still, the investors I spoke with were not starry-eyed evangelists, but pragmatists trying to find an investment that they hoped would appreciate but would certainly provide income from rents.
“I got the year-end statement for my I.R.A. and it was within $2,000 of where it was the year before,” said Mark Rusnak, a real estate agent in Virginia Beach. “I thought there has to be a better place to put my money.”
He moved money into a self-directed I.R.A., bought a house this year for $80,000 cash and spent $23,000 more fixing it up. He said it was assessed for $147,000, but he was happier with the $13,200 in yearly rent — a 13 percent return on his money.
This makes sense, but how many people are willing to bet that real estate will provide a comfortable retirement, especially since the value of their own homes has not yet recovered?
Here is a look at what some investors who have become comfortable with this niche are doing.
WHAT The most common kinds of real estate in self-directed I.R.A.’s are apartments and multifamily homes. That should be no surprise. They can easily be rented out. At the time of this writing I am 48 years old, my goal is in a few years to put all my money into an apartment building. Until then I Rob Rose, will continue to flip homes.
But Kurt Amundson, who sells insurance and real estate in Minnewaska, Minn., said that type of investment seemed too labor intensive to him. So in 2010, he bought an 80-acre parcel of farmland in Iowa. When the price appreciated, he sold it in 2011 for a $50,000 profit, bought a 120-acre plot in a different part of the state and rented out half to a local farmer.
“I looked more for land because I felt it was easier to find a renter,” Mr. Amundson said. “I’m also not too handy. An apartment complex wouldn’t fit into my comfort zone.”
Roger Voisinet, a real estate agent and the former men’s hockey coach at the University of Virginia, made a different sort of purchase based on his expertise: he bought part of an ice-skating rink. The rink, Main Street Arena in Charlottesville, Va., where he had coached the team, was on the verge of closing. He got together with six other investors and committed $300,000 of his own money.
“I wondered how I was going to get the money to do that,” Mr. Voisinet said. “I was told I could transfer the money from my I.R.A. through a simple form.” He set up a self-directed I.R.A. with Equity Trust.
Since that investment in 2010, Mr. Voisinet, who developed an interest in solar energy as a student at Miami University in Ohio, said he pushed to get a grant to put solar panels on the roof to power the arena.
He has also bought three other pieces of real estate for his I.R.A.: rental houses in Jacksonville, Fla., and Charlottesville, and a mortgage on a medical building.
WHY Lorraine Walls, 56, and her husband, Richard, 47, recently adopted a 7-year-old girl and three 8-year-old boys. The couple, who live in Midlothian, Va., not far from Richmond, decided to use their retirement money to buy homes in southwest Florida as security for their children should anything happen to them.
They now own seven homes, all in Lehigh Acres, Fla., through their I.R.A.’s, accounting for about half their retirement money. The homes are 2,500 to 3,000 square feet, and they bought them for about a quarter of what the original owners paid.
“The best one was completely tiled with granite,” she said. “The poor guy paid $289,000 for it; I paid $60,000.” She said two months of rent covered their taxes, insurance and property management fees, with the rest going back into their I.R.A.
When they said three of the homes were on the same street, I asked if that level of concentration scared them. On the contrary, Mrs. Walls said, the neighbors looked after one another to keep the street from deteriorating like many around them.
Greg Rand, a former real estate agent and now chief executive of OwnAmerica, a company that teaches people how to invest in real estate, said he was an advocate of using real estate as an alternative way to finance college educations. He bought a condominium for both of his children when they were born.
“I didn’t care what they were worth in 2007,” he said. “I care what they’re worth in 2019.” By then, he said, both condos will be paid off from a mix of rental income and money he has put in.
HOW Like any I.R.A., a self-directed one comes with plenty of rules. It must be held at a custodian. The legal title of a home must be in the name of the I.R.A.
Any expenses incurred on the property need to be paid by the I.R.A., just as all income generated from rent or the sale of a property need to stay in the I.R.A.
Jeffrey Desich, chief executive of Equity Trust, the custodian for $11 billion of self-directed I.R.A.’s, said most of its clients were in their 40s or 50s and had accumulated enough in retirement accounts to put a portion into a self-directed I.R.A. and buy a property outright.
“The typical account comes from a rollover I.R.A. from corporate America,” he said. “The second-most-popular type is from someone who is self-employed.”
His company provides tax documents just as Schwab or Fidelity does, he said. Unlike them, it offers an online bill-paying function for expenses under $5,000. “We’re subject to the same rules they are,” he said.
He said the average account size was $100,000 to $125,000, with an annual management fee of $300 to $400. But he noted that a nontraditional investment was going to be more time-intensive — hence the name, self-directed. And the investor is going to be responsible for evaluating the worth of the investment, without any safety net.
PROBLEMS While there is no I.R.S. statement about self-directed I.R.A.’s, there is a rule against “prohibited transactions.”
“Among other things, this means the property held by the I.R.A. can’t be for your own use or that of a family member, and you can’t buy the property from yourself with the I.R.A.,” said Eric Smith, a spokesman for the I.R.S.
Mr. Rusnak, the real estate agent in Virginia Beach, said he knew he could not pay himself a commission on the house he bought. He also made sure that all the bills for the renovation were paid by the I.R.A. and that the tenant had his lease with the I.R.A.
The I.R.S. penalties for mistakes are severe. “If you do something that is a prohibited transaction, you could invalidate the I.R.A., and that makes it payable to you as ordinary income,” said Richard S. Aronson, director of special fiduciary services at PNC Wealth Management. “If the I.R.A. owner directly or indirectly achieves a benefit from the assets, that’s a red flag and a big problem.”
Mr. Amundson owns his farmland half inside his I.R.A. and half outside it so that he can hunt white-tailed deer on the property. He said he was aware of the I.R.S. rules and careful to keep his hunting land separate from the rented land.
Then, there is the issue of what to do with the rental income. Presumably, when that income reaches a certain amount, the owner would invest it in more real estate. But until that point, the money could just be sitting there. Mr. Desich said Equity Trust deposits rental money at federally insured banks, which pay close to zero in interest.
But those trying this type of investment believe the returns are worth the more stringent guidelines. At the least, they will own something tangible when they reach retirement.
“I don’t plan on selling any of them,” Mr. Voisinet said of his properties. “I think of every one like an annuity.”
So you see, self directed IRA’s are a great source of building wealth for those of use willing to put in a little extra effort.
Please feel free to call me, Rob Rose in Danville Ca. at (925) 785-7856 if you would like to discuss Self Directed IRA’s
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