Author Archive
How to Avoid Getting Ripped Off When Buying Turn-Key Real Estate
Posted on April 8, 2014 byMake money while you sleep…
There’s nothing sweeter than making money while you sleep by owning free and clear residential real estate. Think about it, you spend a third of your life sleeping, imagine how much more income you can make if you have passive Cash flow.
Sounds great doesn’t it…
“Making money while you sleep”, “massive passive income”, “owning free and clear residential real estate”…it all sounds great, still we have all heard the stories of people that lost their shirts trying to make this a reality. You can avoid getting ripped off by asking 12 critical questions. The key to making successful turn-key investments it knowing the questions you need to ask.
Question #1: Do the principals actually invest their own money in cash flow real estate?
Would you buy a Mercedes from a guy who drives a Chevy? Ask them what they invest their money in. It’s quite common in the real estate teaching world to find guru’s that make their money from teaching and not by following their own teachings. Read More→
“Subject To” – A Little Known Funding Method that Self-Directed IRA Investors Are Using
Posted on March 10, 2014 byThe problem…
You and/or your client have found real estate to purchase. The inspections go beautifully and then a giant road block shows up. What’s the road block? Your client wants to purchase it with their Self-Directed IRA and their IRA can’t qualify for a non-recourse loan because it doesn’t have the cash reserves for the 35% down payment the non-recourse lender is requiring.
The solution…
Self-Directed IRA investors have a technique they call “Subject To” that can solve this funding problem. The “Subject To” loan qualifies as a non-recourse loan and can be used to purchase real estate within a Self-Directed IRA. It should be noted that the “Subject To” method can be used for deals whether the property is being purchased by an individual or by their IRA.
“Subject To” defined
Subject To means “Subject To the existing mortgage on the property.” Put simply, the owner of the property transfers the deed to the property into the buyer’s name (or the name of the buyer’s Self-Directed IRA) and the buyer (or their Self-Directed IRA) is responsible for making the payments on the seller’s existing mortgage. Read More→
Caution! Inaction Could Disinherit Your “Intended” Self-Directed IRA Beneficiaries
Posted on February 10, 2014 byNow that January is past, it’s time to settle in and think about some of the more important but often forgotten items. Chief among them is your beneficiary designations. The person or entity currently slated to inherit your Self-Directed IRA account may no longer be the person you want to inherit your account. This applies to your Self-Directed IRA, accounts under employer plans such as 401(k)s, 403(b)s, profit sharing plans, pension plans, and the many assets you have worked hard to acquire. There are numerous documented cases of individuals or estates inheriting retirement accounts and assets when the owner wanted the beneficiary to be a different party. The following tips can help you to track your beneficiaries and assets:
- Maintain a beneficiary file: Create a list of all of your retirement accounts/assets and identify the named beneficiaries. If you do not already maintain all of this information in one easily accessible area, now may be a good time to start. This will help you to keep track of both your current beneficiary designations and all of your assets.
- Perform annual check-ups: Check your beneficiary forms and your Will at least once per year to determine if you need to make any changes. Events involving your beneficiaries may necessitate changes to your current named beneficiaries. For instance, you may have gotten married or divorced, and need to update your beneficiary form to add or remove your spouse or former spouse. Read More→
Buying a Business With Your Self-Directed IRA
Posted on January 4, 2014 byStocks, bonds and mutual funds are all well and good – for those seeking ordinary returns. But if you have a particular expertise, or access to a lucrative market for just about any good or service, you have the potential to earn much more by going into business for yourself than you stand to gain by investing in the broad market.
Fortunately, your Self-Directed IRA doesn’t limit you to the mundane investments you read about in the papers all the time. In fact, IRA rules only restrict you from investing in a few things: life insurance, jewelry, gemstones, art and other collectables, alcoholic beverages, and some forms of gold and precious metals of insufficient purity or standardization. Other than that, the sky’s the limit on what you can own!
Owning a Business in Your Self-Directed IRA
By using your Self-Directed IRA to start or acquire a business, you are in control. Rather than hoping against hope the market will be kind to you this year, you can make things happen yourself. Want your business to grow? You can invest in advertising, new equipment, a new truck, more staff – whatever it takes to react to the current economic environment. Many of our clients find that investments like these often pay off far better than anything the same investment reasonably earns in the stock market, at least at an acceptable level of risk. This must be an arm’s length business, you can’t operate the business, and you can’t draw a salary from it. Read More→
Self-Directed IRAs: Investing in What You Don’t Know
Posted on December 6, 2013 byIf you’ve been following my articles, then you know we have often talked about how self-directed IRAs give you the freedom to invest in what you know and understand with your retirement account. This is the first time that we will talk about investing in what you don’t know.
Setting the stage…
Introducing Jenna, she is new to real estate investing and knows some very experienced real estate investors she can lean on for advice. She’s looking for her first deal and has not yet mastered the art of networking.
Jenna’s Goal…
Jenna is looking for her first purchase with her self-directed IRA…a single family home for $60,000 or less in an area that currently has a shortage of rental properties available. She wants 50% equity in the home she purchases and, given her inexperience, she is looking for a home that needs very minimal repairs. Additionally, she wants a net monthly profit of $250 per month. Her goals are ambitious even for an experienced investor. Read More→
Foreign Real Estate in Your Self-Directed IRA
Posted on November 6, 2013 byMany people are surprised to learn that not only can they take direct ownership of real estate within their IRA, but they aren’t even restricted to owning land within the United States. The IRS rules regarding what you may or may not invest IRA assets in are very liberal, and there is no IRS restriction whatsoever on ownership of foreign assets, including real estate.
Benefits of Foreign Real Estate Ownership
Owning assets abroad can be an important way to help diversify your investment portfolio. The economies of other countries and regions don’t necessarily move the same way as the U.S. economy. When U.S. assets are in decline, real estate in other countries is sometimes doing very well. For example, many regions in the Caribbean are benefitting from rapid economic growth due to a rise in traffic from more affluent Europeans. While real estate in Florida continues to struggle, some areas in Jamaica and the Bahamas are experiencing rapid development – creating opportunities for enterprising real estate investors. Case in point: A Chinese company is currently building a massive $3.4 billion resort at Baha Mar in the Bahamas, scheduled to open in December of 2014. If the project succeeds, that casino is projected to boost the gross domestic product of the entire country by 10 percent.
Meanwhile, even a relatively small amount of money, by American standards, can purchase a vacation rental home that will be extremely attractive to a European, Asian or Middle Eastern tourist. Homes in some areas of the world still sell for a fraction of what comparable beach front or other resort area homes would go for in the United States. Read More→
Using Your Self-Directed IRA to Invest in Hard-Money Lending – Part 2
Posted on October 9, 2013 byConsiderations
Hard money lending can be a great place for self-directed IRA or other retirement assets. There are, however, a few things to be aware of before you commit:
- Hard money loans can be illiquid. If you are nearing or over age 70, pay attention to your required minimum distributions. You must make these RMDs, even if the borrower pays the loan late. You may want to earmark RMD money to come from another source besides the hard money lending part of your portfolio.
- RMDs do not always have to be taken in the form of cash, some self-directed IRA investors that do hard money lending have elected to take their RMD in the form of the actual loans themselves. In fact, you can even take a portion of the loan as your RMD thus becoming partners with your IRA on that loan. (For Example: You can take 25% of the loan as your RMD. You would then own 25% of the loan and your IRA would own the other 75% of the loan.)
- Your ability to contribute new money to your self-directed IRA or other retirement account is limited each year. For self-directed IRAs, for example, you are limited to $5,500 in new contributions. Anything over that must be rolled over into the account from another qualified retirement asset, or you will have to borrow the difference.
- You cannot lend money to yourself or certain family members, via your self-directed IRA. You therefore cannot make a hard money loan to any property in which you, your spouse, your ascendants or descendants and their spouses has an interest. Similarly, you cannot lend money from your self-directed IRA to any project in which any legal, accounting or financial professional who advises you on your self-directed IRA investments has an interest. Read More→
Using Your Self-Directed IRA to Invest in Hard-Money Lending – Part 1
Posted on September 6, 2013 byWhen a real estate developer runs into a snag, and needs additional money to complete a project, or he wants a shorter-term loan of, say, six months to six years, he frequently turns to the “hard-money” market. In a nutshell, these are lenders who are looking to get a decent return on their money, with a margin of safety. They usually do this by holding a lien on the property, or on another property the borrower owns, in a practice called “cross-collateralization.”
If you’ve got a lot of money in your self-directed IRA, and it’s been earning relatively weak returns, hard money lending provides a potentially lucrative way for you to “take charge” of your assets. With hard-money lending, you aren’t depending on the skills of a mutual fund manager you’ve never met, nor do you need to settle for the lackluster interest rates currently available from investment-grade bonds and treasuries.
Instead, you’re free to seek your own deals with any number of private real estate developers. Here are the advantages to hard-money lending in your self-directed IRA: Read More→
Self-Directed IRA and Real Estate – A Popular Combination
Posted on August 6, 2013 byCombining a self-directed IRA and real estate is a trend that is picking up speed fast! Real estate investors are redirecting their focus and purchasing homes with their self-directed IRAs in mass. Partly because they refuse to settle for living on the measly average $1,230 per month social security check that many retirees are forced to budget with.
Large companies are cutting back on their employees’ hours in preparation for the Obama Care regulations and this change is causing people to rethink their futures prompting them to obtain both a self-directed IRA and real estate investments. With their salaries shrinking, they are looking for alternative revenue streams to build their retirement accounts.
So why is real estate picking up steam? Many people have lost their homes to foreclosure, others can’t get financing due to the new bank regulations, and some people simply do not have enough confidence in the real estate market to buy a home so they are looking for rental properties to live in. For these reasons, the demand for rental properties is at an all-time high and real estate prices, while slightly on the rise, are still low enough to make this an investors’ market. Large cities listed in the top 10 fastest-growing U.S. cities of 2013 are among the most sought after in the rental market. There are droves of residential properties on the market at great prices and investors are buying them up quickly. Read More→
Your Most Important Deal… Keeping Your Investments and Family on Track!
Posted on July 5, 2013 byYou’re prepared right?
The first step is one that many real estate investors have already taken care of…drafting a Last Will and Testament. So, you have it all spelled out…you have met with your lawyer and carefully drafted a Will that details who inherits all of your assets right down to your great great grandfather’s pocket watch. While this is an important first step, if you are an active real estate investor, the fact is that you have some additional preparation needed in order to allow your loved ones to continue to maximize the benefits of all your hard earned investments.
The Real Estate Investors Portfolio
Drafting a portfolio is critical when you own multiple real estate holdings and other investments. The portfolio should detail: Read More→
Protect Your Nest Egg – Mistakes that Can Cost You!
Posted on June 10, 2013 byLack of Knowledge
Many people make mistakes due to a lack of understanding of the governing rules. This article covers two of the most common mistakes. Understanding these rules can help you grow your self-directed IRA without fear of losing out to avoidable errors.
Violating Once-Per Year IRA-To-IRA Rollover Rule
You have two options when moving assets between your IRAs; one is a transfer and the other is a rollover. Under a transfer, the delivering IRA custodian pays the amount to the receiving IRA custodian for the benefit of your IRA. Transfers can be done for an unlimited amount of times.
Unlike a transfer, a rollover can only be done once during a 12-month period per IRA. Failure to follow this rule will result in loss of tax-deferred status, which means that the amount would be treated as ordinary income and could be subject to the 10% early distribution penalty if the distribution occurs while you are under age 59½. The amount could also be subject to a 6% excise tax if not corrected by your tax-filing deadline, plus extensions. Read More→
Commercial Real Estate – The Profit is in the Details!
Posted on May 6, 2013 byCommercial Real Estate
Buying Commercial real estate with your self-directed IRA is not much different than buying a residential property, except commercial real estate purchases require a whole lot more due diligence.
Commercial Real Estate – Get the Real Numbers!
The offering says gross potential, (a.k.a. pro forma). This is one of the things you’ll run into all the time. The broker says it’s got a great pro forma. Here’s what it can generate. You want to find out what it did generate, not what it’s going to generate. You want to buy what it’s doing today.
With REOs, foreclosures and distressed sales, you’re going to have to evaluate things on a case-by-case basis and get the real numbers.
Commercial Real Estate – The Truth is in the Documents!
This section outlines the many important documents you need. Having said that, remember you can make the offer in advance of receiving all of the below as long as you make the offer contingent on the receipt of the documents you need. A note about contingencies: make sure you are very specific including amounts you expect to see on the documents, ability to get insurance at the current cost, verification from the county of zoning specific to what you intend to do with the property, etcetera.
A lease is the most important document. Read every lease line by line and make notes, or get somebody that knows how to read leases line by line. Are there any special arrangements? The landlord says they’re paying $1,000 a month, but it turns out that I’m obligated every year to repaint the place, re-carpet the place, and so forth. Read More→
Is it an Art? Is it a Science? No it’s Fairly Simple! How to Find Investors!
Posted on April 5, 2013 byHow to Find Investors – It’s Fairly Simple!
When you’re looking for private money, it is not an art. It’s a fairly simple process.
How to Find Investors – Benefits
The benefits really depend upon the negotiation with you and the lender. Here are a few of the many possible benefits:
- You’re dealing with an individual who can make the decision right then and there, or as close to right then and there as you can.
- You generally pay points for loan origination fees to traditional lenders, with private lenders, whether points are paid or not is a matter of negotiation.
- Traditional lenders require payments on loans; with an IRA it may be possible to arrange a no payment loan.
- If you need a one-year or two-year loan to do a rehab and the investor says “I don’t need the cash flow because it’s in my IRA, I’d rather have the extra one or two percent.” That’s great; you’d rather not make any payments until the house sells.
- You set the terms with the private lender, not the bank.
- Many times, there’s no personal credit required; however, not always.
- There are often no personal guarantees; this varies by lender and negotiation.
- In some cases, you can get dollars upfront for funding expenses.
- That’s not always the case. Many private lenders will say “no money upfront”; still others will say “100% as long as the Loan to Value is 65% or less.”
- Some lenders will require some sort of equity, “skin in the game”, to make a loan. That’s one of the nice things about dealing with private lenders; the terms are completely negotiable between you and the lender.
Are Self Directed IRAs Safe?
Posted on March 11, 2013 byFDIC Insured
All un-invested cash in your self directed IRA is FDIC insured.
As a note, FDIC insurance only covers cash balances, not once you make a purchase of a non-traditional asset. All credit card transactions are safe — American IRA is certified by Security Metrics. All accounting is processed through a top-rated trust accounting system. We maintain professional insurance coverage, including crime shield policy and errors and omissions policy.
Asset Vesting with Your Self Directed IRA
All assets are vested in the client’s name at the time of purchase… “American IRA, LLC for the Benefit of Client’s Name IRA”.
Investing with Your Self Directed IRA
Investing within a self directed IRA is completely within the investor’s control. Is it safe? Yes, to the extent that the investor controls it. Here’s something that’s overlooked many times when we’re talking about safety between the securities industry, and let’s say in this case we’re talking about the real estate industry. Each investment has its own characteristics as to safety. Read More→
Learn How to Be a Blue Collar Genius!
Posted on February 8, 2013 byBlue Collar Genius Defined
A Blue Collar Genius is all of us who have mastered our craft with hard work, diligence, taking action, creating experience, making mistakes, and most importantly never giving up!
That’s a blue collar genius by my definition. How many times have you said I’m smarter than he is, but he’s driving the big Cadillac and you’re driving the little economy car? How could that guy ever make any money?
Perspiration, Inspiration, and Blue Collar Genius’
Thomas Edison said “Genius is 90% perspiration and 10% inspiration”.
The Top Real Estate IRA Investors Know Lack of Knowledge = Fear
How many people do you know that have been to every seminar, they know more about real estate IRA investing than anybody you’ve ever talked to, and when you ask them “how many deals have you done?”, they say “Well, I’m still working on my first deal.” You ask, “How long have you been a member of the group?” You’re not shocked when they respond, “About eight or nine years, but I’m looking.”
Knowledge is wonderful, but you have to actually use it! Read More→
Real Estate IRA Investing – The Purchase
A young couple found a home they wanted to purchase with their real estate IRA. The purchase price was $50,000. They borrowed $55,000 and had $800 worth of repairs. I know that $800 worth of repairs for a house purchased with 1,400 square feet, three bedrooms, and two baths through a short sale sounds absurd, but these are actual numbers from an actual deal.
Real Estate IRA Investing – The Repair Bill
I’ve personally never seen $800 worth of repairs in my entire life and I’ve been in this business for 40 years. I can’t even walk through the house for $800. I don’t know what it is but I’ve never done that, so that was phenomenal to me. The deal’s great but how did you get $800? They actually got a little cash back at closing since they borrowed $55,000 for a $50,000 purchase. Read More→
Acquisition, Disposition, Good Decision?! Key Things to Keep in Mind When Investing in Real Estate!
Posted on December 9, 2012 byDue Diligence When Investing With a Self-directed IRA and/or Self-directed 401(k)– Where do I Start?
With a self-directed IRA and/or a self-directed 401(k) you are always hearing that you must do your ‘due diligence’. At American IRA, we discovered that many clients did not know how to do their ‘due diligence’. While we cannot give investment advice at American IRA, we can offer a detailed summary of ‘due diligence’ items that our clients can use as a guide. This list gives our clients a healthy starting point that they can use during discussions with their professionals. In this article we share with you ‘due diligence’ items related to real estate acquisitions. As every investment is different, you should consult with your professionals about whether there are ‘due diligence’ items you need to consider in addition to what we share in this article. Read More→
Bank Won’t Finance… Private Lending is An Option
Posted on November 3, 2012 byPrivate Lending Explained
If someone wants to just simply hold the paper secured by an asset, they’re actually going to be a private lender for that asset. That’s right…private lending simply means a private individual is loaning the money rather than a bank or lending institution.
Private Lending…The Numbers
In this example, Jack Brown has $100,000 in a Rollover IRA, which is just another way of saying Traditional IRA. He wants to loan it to an investor as a first mortgage on a property worth $135,000.
Private Lending…Determining the Value
Perhaps Jack’s realtor, an appraiser or some resource told him, or perhaps he’s sophisticated enough to look at the deal and say I’m comfortable that the deal is worth $135,000. We always suggest doing your ‘due diligence’ and using professionals to assess the value of an asset you are going to loan money on.
In this case, we’re looking at an LTV – Loan to Value – of 75%. Hold on a minute, isn’t 75% LTV a bad idea? Everyone has to determine their comfort level when loaning money. I personally do not lend on anything over 60% Loan to Value. Read More→
What’s the Buzz!?! Is it a Bird? Is it a Bee?
Posted on October 3, 2012 byBuzz Words and Warning Signs
As investors, we must always be aware that there are fraud promoters lurking in every corner waiting for their next opportunity to pounce on an un-expecting investor. To help you avoid falling victim to fraud, here’s a recent study of SEC Investor Alerts which show some very obvious but worth mentioning ‘buzz’ words every investor should watch out for:
- Guaranteed
- Can’t Miss
- Extremely High Returns
- Safe and Risk Free
- Promised _____% Returns
In the SEC alerts they are primarily discussing investing in LLCs and Private Placements; however, these warnings are absolutely applicable to real estate transactions, private loans, or any other investment a person would consider making. Read More→
What About George?!?
Posted on September 10, 2012 byThe Dream
George L., a client of American IRA, LLC, wanted to purchase a 56 unit, 1.2 million dollar mobile home park inside his IRA account.
The Details
George was determined to make this dream a reality and worked hard in negotiations with the owner of the mobile home park finally settling on these details:
- Purchase price $1,200,000
- Down Payment $200,000 from an old 401(k) plan
- Owner financing $1,000,000 at 6% interest
A Word of Caution about Loans inside an IRA
The American IRA account specialist informed George that the owner financing needed to be “non-recourse” to qualify for IRA financing.
The account specialist explained further that “non-recourse” means the property is the only collateral; neither George L. nor his IRA can be held liable.
George went back to the table with the owner and was able to negotiate non-recourse terms for the owner financing. Read More→
