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Individual Retirement Accounts: A Powerful Tool For Real Estate Investing

GDNI 85 | Individual Retirement Accounts

 

Did you know that the Individual Retirement Accounts can be a powerful and effective tool in creating real estate business? In today’s episode, Chris Seveney and Gail Anthony Greenberg share the facts about individual retirement accounts and how it works. Using IRA as a tool for real estate investing, Gail managed to be successful in the real estate industry. With their experiences, they share wonderful tips and tricks and great pieces of advice on how to make IRA as a powerful and effective tool for real estate investing. Join Chris and Gail as they impart their expertise in individual retirement accounts and help you build your real estate empire.

Listen to the podcast here:

Individual Retirement Accounts: A Powerful Tool For Real Estate Investing

Gail, how are we doing?

I’m very well, Chris. I see we’re abandoning all attempts to find any more adjectives to describe each other. The last time I said nothing about you, you were like, “You didn’t say anything.” I’m ordinary to you.

It’s a podcast marriage. You’re my podcast wife. We’re past the honeymoon stage.

We’ve got the fatigue factor now setting in. I told you when we talked about this. I was literally in my kitchen the other day and it came into my mind that Chris is like the most adorable human being on earth inside and out. You look like a little boy. That’s very cute but you’re also such a nice person. Everybody calls you with all kinds of things and even though you’re ridiculously busy, you always end up trying to help them.

I don’t think my partners in my last class I finished at Georgetown would agree with you at all.

Maybe you were not that friendly to them, but you did do the whole all the work on the group project.

I did a good component and corrected a bunch of stuff. Needless to say, it was due Sunday night and there was one other partner. There are four of us. I’m going to say everyone contributes, but as like any project, some people contribute more than others. This one partner, I felt so bad for her because she was the one who had to wrap it up and submit it. She uploaded it but it didn’t upload properly. We get an email on Tuesday night, “You failed the class because you didn’t finish your projects.”

If you're just going to invest in things that have a very low return, there may not be any point in having a Roth IRA. Click To Tweet

You’re fixing it? You didn’t fail the class.

No. We resubmitted it. You could see like something was submitted. It didn’t come through. We resubmitted it and got it regraded. Everything is good now.

That was the one piece of the equation that you did not take responsibility for. That was the one that got messed up. Does that surprise you or not?

It’s usually the stuff that I’m involved in i.e. submitting deeds and stuff like that gets screwed up, Gail. I usually like to keep hands-off as much as possible because I’m good at screwing things up.

You say that but you and I both split up a list of borrowers that we had to call to see if they wanted to convert their existing contracts for deed into notes and mortgages. Out of eighteen people, I reached two.

It’s a marathon, not a sprint, Gail. I’ll give you more time.

You’ve got some magical X factor, Chris, admit it.

GDNI 85 | Individual Retirement Accounts
Individual Retirement Accounts: The more money you can stash away into a tax-free or a tax-free haven account, the exponentially higher the growth is.

 

Enough of the banter. Let’s talk a little bit about individual retirement accounts or IRAs. It’s going to be a two-part episode that will get published separately. The first one we’re going to talk about IRAs and we’re going to roll into solo 401(k)s. For people reading, Gail is more of an expert on the IRAs because she lives and breathes them. I have a solo 401(k) so I’ll share my experiences with that between the two. As always, if people have to read this, have questions, feel free to reach out to us. We will stipulate or state right off the bat, the legalese component that we’re not financial advisors, we’re not experts with IRAs. If you have one, make sure you seek counseling from your advisor before sending anybody any money.

There’s a possibility that with the best of intentions, we might fudge some of the details here. We should not be considered in any way as the final word on this. I love this topic. All our knowledge on it comes from what we have done in our personal lives. You do not have a self-directed IRA. You do have a solo 401(k). I do not have a 401(k). I only have IRAs. We talked about IRAs in our very first podcast episode. It would be very interesting to circle back and see what we thought compared to now because we’re pretty close to our first anniversary with this podcast. I’d like to think we’ve become wiser in the process, but who knows. IRAs, the topic was inspired because I have a joint venture or investor who is a smart guy. He’s savvy in real estate too. He’s got a very high-powered job. He makes a very good living and he’s pretty young. I’m not sure that he’s even 40 yet. He’s been flipping down in Florida.

He’s from flipping houses and making some pretty good scores on them. He was asking me about IRAs because he joined our fund and in the group calls that we’ve had where people are seeing each other and seeing the questions that people ask. Also, talking about the fact that a lot of people use their IRAs in our fund. He came back to me and he was like, “I’m the only one who isn’t investing with my IRA and I feel so dumb.” I thought, “It’s not dumb at all particularly when you’re young. I don’t think you think that much about retirement accounts necessarily,” but he is right in the sense that most of our investors do use IRAs or LLCs. It’s such a powerful tool for real estate investing and well suited to real estate investing. That’s the biggest surprise to most people. I’m always surprised when people don’t know they can use their IRAs for real estate investing. That’s common.

The most common even when you look at a global component is most people don’t know self-directed IRAs exist. People know they have an IRA, but they’re like, “I’m going to PNC or Wells Fargo or My Credit Union. I’m going to set up an IRA and they’re going to put it into a CD at 2% or Fidelity or something like that and get 5% and pay all these fees and stuff.” A lot of people don’t even realize that you can to have your own IRA and direct what you want and like you said, invest in real estate.

When you think about it, how would the average person find out that they were allowed to self-direct? The way I found out and maybe you too, is that if you are studying real estate investing, at some point a guru is going to either try to enroll you, send you to an IRA custodian to set up a self-directed IRA or the subject is going to come up within the real estate investing world. If you’re an average person who isn’t studying real estate investing, who’s going to tell you? Your broker at Morgan Stanley is not going to tell you, “You don’t have to use me. You can set up this account. You could do your own thing.”

It’s interesting you mentioned that because you mentioned your broker. You’re not going to learn from your broker because they collect fees. You go to a bank and if you give a bank $1, they can lend $10 on it. From that perspective, a bank isn’t going to tell you that. You’ve got your banker, your broker, and your retirement account. If you have somebody else even like through your 9 to 5 job. They’re not going to tell you because they’re going to say, “Put it in the company 401(k) because we’re in much money and so forth.” They hear it from somebody else. You’re not going to see it advertised anywhere from that perspective. It’s unknown.

It’s a miracle if you find out. I will describe my set up. I’ve had an IRA. I was a young working person when IRAs first became a thing. I remember being called to a human resources meeting where it was explained to us what these things were and I didn’t get it, but I signed up anyway. Our boss must’ve been getting fees from it because we were all very encouraged to start IRAs. Over at the ups and downs of the Millennia since I was a young working person, the thing has grown. Even though I had difficult years as a freelancer starting at 911, our work fell off. What they said to us at the beginning was true. If you start one at a young age and you have years, they definitely will grow to be something.

If you're not someone who can mind the details, then do not do any checkbook control. Click To Tweet

My IRA is a traditional IRA because way back then, there was no such thing as a Roth IRA. Honestly, when Roth IRAs did get invented and became available, I kept reading about them and I had no idea why there would be an advantage to having one. The advantage of having a traditional IRA is you got to put money in there from your income, don’t pay any taxes on it and that sum of money gets removed from your taxable income. There are quite substantial savings there potentially. I have a SEP IRA so I’m allowed to put in quite a lot of money compared to the traditional IRA. We have limited to $5,500 or $6,500 or something in that order. This is the detail that I am unreliable on because I don’t do the traditional IRA.

What I want to talk about is Roth IRAs for people who invest in real estate. This is what I was talking to my JV about. Roth IRAs, when they first came out, it was like, “What is the point of having a Roth IRA? You pay the taxes. You don’t save on your taxes at all.” It felt like starting a savings account that you can’t touch until you’re of retirement age. I would say to people who don’t invest in real estate or other things that can grow exponentially that if you’re going to invest in things that have a very low return and very modest growth over the years, there may not be any point in having a Roth IRA. If you are going to invest in real estate and notes are a great example, there is the tremendous benefit of paying taxes on the money when it’s going into the Roth IRA and never having to pay taxes on any of the growth or return that you get on it.

I’ll give you an example of what happened to me. I opened my Roth IRA when I got into note investing and within a fairly short time, one of the first contracts for the deed I bought was in my Roth IRA, but one in my traditional IRA and one in my Roth IRA. That CFD is the one in Flint, Michigan that nine weeks after I bought it, it burned down. That wasn’t a happy thing. It turned out to be a good thing. The borrower got a ton of money. She had the house, I thought over-insured, but the insurance company paid her. She ended up moving to Tennessee where I hear she’s very happy now. She bought a house for cash and everything. What happened to me as the lender is that I invested $15,000 in this contract for deed and after nine weeks of owning it and the house burning down, I received a full pay off of $42,000.

I made $27,000 on an investment of $15,000. It was in my Roth IRA. You know what that means. I am never going to have to pay tax on that $27,000. I already have recycled that, re-invest it in other things. I’ve had other ones in there where I bought a house. The borrower gave it up because he was moving. He doesn’t want to be bothered with it and he basically canceled his own land contract. I ended up selling that house and making another windfall on it. You can see that it doesn’t take a lot for things like this to happen that ramp up the value tremendously without you incurring any tax penalty. Not only that, my kids are going to inherit that Roth IRA and they are going to be able to take money out of it without any income tax on it. How cool is that?

For people reading, if you’ve never seen the chart showing money growing tax-free versus non-taxed and how the gains over time are unbelievable when you start looking at it, you start with $100,000 and tax-free. You got money on it versus having to pay 25% tax on it down $75,000. Basically, the growth exponent to it is mind-blowing when you look at it. If you have cash and IRA money, you look at this and see it’s mind-blowing, the difference in how fast and how much money you can grow. It’s one of the things that I’d say a lot of people are right on is the more money you can stash away into a tax-free or a tax-free haven account where you may either not pay taxes on or pay taxes down the line, the growth is so exponentially higher. It’s unbelievable.

Particularly, the younger you start, the more opportunity there is to exponentially explode. I was a latecomer to the Roth game. I’m grateful that I’ve had these windfalls. Even in regular note investing, my Roth has done well to the point where the famous church that I bought at the certificate sale in Indiana. We are days away from the final hurdle to turn that into a four-unit apartment building. We have gotten through the redemption period. We haven’t gotten through the deed and getting the deed. We have passed. The planning commission thinks it’s a great idea and has recommended to the city council that they approve it. Monday is the city council meeting. This is the last thing that has to happen.

I’m hoping it is smooth sailing, but there’s a situation where I bought and renovated a 4,000 square foot, one story. It’s not a pretty Gothic church with spires, altars or anything like that. It’s a big cavernous 4,000 square foot L-shaped building. I will have hopefully when it’s done about $100,000 invested in the purchase and renovation of it. The four units are expected to rent for $2,800 a month, gross rent for the four of them. That is in my Roth IRA. That is not only income that I’m going to live on in my elderly years, my dotage as they say, but that is income stream that my children are going to inherit when they get my Roth IRA. They will have years of income from not just that property. There are other properties in there too.

GDNI 85 | Individual Retirement Accounts
Individual Retirement Accounts: If you are going to invest in real estate, notes are a great example in getting tremendous benefits.

 

As I’ve said before, I hope to be remembered fondly by my children. This is my plan. We will see. The one thing that I’ve been trying to understand is that I inherited a traditional IRA from my dad and that is also an IRA that I turned into a self-directed IRA. That is also buying notes and rentals. My typical routine is initially I did all my investing in these two IRAs to learn. I didn’t want to use other people’s money when I was learning. I did a lot of investing. For the most part, it’s gone very well. At this stage, I have a bunch of rentals in the traditional inherited IRA. I am required to take a distribution every year from that IRA that is based on the value of the IRA and my life expectancy. Roth IRAs are the same.

I thought at one point that you as the owner of the IRA never have to take distributions, unlike a traditional IRA where you have to start at 70 and 1/2 to take distributions and the distributions are calibrated so that if they expect you to live to 90, you have to take out X amount. I don’t know what the life expectancy in America is anymore. That’s what they base it on. The idea is that it gets exhausted by the time you die and there isn’t anything to inherit. I don’t know how it works when your IRA owns rentals and they don’t exhaust themselves. They keep cashflowing. How do you get in front of it? My kids are definitely going to inherit a cashflow there.

I’m not sure what they will be required to do in terms of the distributions, but it’s pretty sweet. I’ve bought CFDs in my Roth IRA. Famously, the house that I’m renovating down South, I bought that in my IRA. As people know, you can’t personally benefit from anything in your IRA. Even though this house is in a place that I dream of spending my winters because it’s down south and I live in Philadelphia, which is cold, I would not be allowed to use that house at all in my IRA. What I did was I took it as a distribution and you are allowed to do that.

The rule is if your Roth IRA is less than five years old and you are younger than 59 and 1/2, there is a penalty to taking a distribution and you have to pay. My Roth IRA is not five years old yet, but I did not have to pay the penalty because at any time you can take out of your IRA whatever you originally put in it. At this point, I’ve put a little over $100,000 into my Roth IRA, converted from a traditional IRA. What they did when I wanted to take this property as a distribution is that I had to go get a realtor BPO. They put a value on it. When I took it, when it got deeded into my name, I had to deed it to my IRA custodian. My custodian deeded it back to me. They submit them to the IRS letting you know that I took a distribution value that in this case, was $65,000. I have put more than that into my Roth so I don’t have to pay any penalty on it.

I had a few questions and comments because you’re talking about distributions and some things you can and can’t do. One of the things that I learned with IRAs and like you said, “You can’t benefit from it.” I hear a lot of people and I’ll ask this question, I want to buy this duplex with my IRA. Can I live in half of it or I want to buy this property with my IRA, but I want to sell it to myself? Are those things typically that somebody can do?

You absolutely cannot buy a duplex and live in half of it. You can’t receive personally the rent from it out either. With an IRA, the IRA has to be treated almost like it’s a separate person. If the IRA owned something, the IRA has to pay the bills. If you need a new roof, the IRA has to pay for it. If it’s rented out and rent comes in, that goes to the IRA. It never gets paid to you personally. In a way, I have a very clear-cut situation because I have checkbook control over both my IRAs. It’s very clear to me who’s in charge. I’m not working through a custodian. When I do real estate deals, my IRAs are set up as LLCs that have their own bank accounts at my local bank. When my IRA wants to buy something, I make the decision and sign the paperwork. The money gets wired out of my LLC account and any proceeds get wired or sent as checks made out to the LLC and get deposited in the LLC. No money ever comes to me personally.

Gail mentioned an interesting component that I’ll talk about briefly, which is checkbook control, which a lot of people will use Quest Trust, MidAtlantic or some of these custodians. They basically take care of everything and you tell them, “I want to invest.” “Fill out some paperwork.” They invest in it for you. With checkbook control, you’re that custodian. You are in control, which is good, but you also have to make sure you understand the rules.

IRAs are a powerful tool for real estate investing. Click To Tweet

People ask about checkbook control. Basically, the IRA custodians who don’t allow checkbook control will tell you that checkbook control is incredibly risky. I had a tax attorney set up my checkbook control IRAs. Every time I hear something like this, I run it past him. He’s like, “No.” There’s a rumor that checkbook control IRAs are extra scrutinized by the IRS. He said, “That’s not true.” I can’t say for sure who’s correct on this subject. I’m praying it’s my guy. The thing about checkbook control is that it’s incredibly convenient. You still do have a custodian, but you are the one in the driver’s seat with your checkbook control. Custodians will move the money at the very beginning from wherever it is now into your checkbook-controlled bank account.

They also require like every other IRA custodian a valuation from you every year of what the account is worth, which they report to the IRS. Any contributions or distributions have to go through them. For me to take that property as a distribution and also when I have to take my required distribution every year from my inherited IRA, those transactions go through them. I literally send the money to them for the required inherited IRA distribution. I sent it to them with a deposit and then I send a distribution request and they basically then send me my money back. It has to go through them so that they do the accounting for the IRS, the reporting function.

One thing that popped in my head I wanted to go back and mention is not only can you not benefit, but there is something called disqualified individuals as well.

There are two things you have to be aware of. I always say to people, “If you are able to follow the rules and keep these simple rules in mind, you would be fine with checkbook control. If you’re not someone who can mind the details, I would highly recommend not doing checkbook control. These are the rules. There are disqualified people. That is, you cannot do deals with anyone in your up and down the lineage. You can’t do deals with your parents, your grandparents or great grandparents, your children, your grandchildren, your great-grandchildren. That way you can go side to side. You can do deals with your siblings and with your cousins, your aunts and uncles. It’s not those people. Everyone else is not a disqualified person. There are other types of disqualified people so you should familiarize yourself with the list that you can find on the IRS website like people that you’re in business with. There are other types of people, but mostly family is what people generally are more likely to do deals with. There are prohibited transactions. Basically, you can invest in almost anything with a self-directed IRA except insurance products and collectibles. You can’t do a stamp or coin collection. I’m pretty sure you can invest in Bitcoin if you want to, if you’ve got the stomach for that.

Things like that, check online. If I have an IRA and my mother has an IRA and it’s $100,000 deal, if we both put in $50,000 and take the percentage of that split in both basically could have invested in that individual, you can do that deal with that individual.

Your IRA can team up with other people’s IRAs on deals. Your IRA and your mother personally could not do a deal together.

I’ve done a deal that I ran through with my 401(k) and my mother’s IRA where what was explained to me as if it costs $20,000, each one of you could be able to buy that in its entirety. Each one of us would have to have 20,000 in our account. I can’t have me contribute $15,000 and give her 80% of the profits. If I contribute $10,000, she contributes $10,000, it has to be a 50/50 split. You can’t finagle the numbers.

GDNI 85 | Individual Retirement Accounts
Individual Retirement Accounts: Banks and lenders can take your property but they can’t take away your IRA.

 

This has come up in situations where people with IRAs have a little bit of money and they want to team up with like a JV funder to do a bigger deal. Let’s say you had $200 in your IRA and there are people who have $200 in their IRA and you want to buy a $50,000 property. You can’t put in $200 and the investor puts in $49,800. When you complete the deal, split the profits 50/50. That cannot happen. That’s called IRA stuffing. It’s a huge no-no. The thing is that if you’re going to set up a checkbook controlled IRA, there are many companies that set these up where there’s a tax attorney involved and on staff. Many of them, for a low price, you can basically buy consulting.

Particularly in your first year when you’re looking at all different kinds of deals, you’re going to think like, “Can I do this? Can I do that?” You’re not going to know. It’s good to have someone on retainer like that. Particularly most of these places charge less than $200 a year to be able to send an email anytime to your tax attorney and got an answer definitively. That is very well-spent money because this shouldn’t be a factor with an IRA where you don’t have control yourself. If you make a mistake and do something with a disqualified person or something that is a prohibited transaction, my understanding is that your entire IRA can be liquidated and declared not an IRA anymore. You don’t want that to happen. That would be very bad.

We talked a lot about IRAs and we talk about how powerful they are and everything. Give us an example or use percentages that you’ve had an IRA for X years and you can use fictitious numbers. If you started with X amount of dollars, five years later, it’s three times what you started. How have you been investing with your IRA and how has its performance been?

I started my Roth IRA in 2016. I have put in small chunks of money. Basically, I’ve put in a $100,000 over a few years and that account has more than tripled in value at this point between notes and rentals. I feel like the most important thing with an IRA is to get it set up and ready because you know as I do that opportunities present themselves at unpredictable times. Having the ability to move quickly and close on a deal, to me this is the big advantage of checkbook control. I don’t have to wait for the Quest IRA to review my paperwork. Quest, props to them, they’re pretty fast. Some IRA companies will lose you the deal because they will take so long. I don’t you want to name names, but you and I both as JVs have had JVs with IRA accounts as are investors on deals. I know there have been cases where they’ve moved so slowly that you’ve had to go ahead and buy the thing and wait for your investors’ money to finally come back and pay you back.

It’s like going to your department of motor vehicles sometimes dealing with these people. You get there and it’s like, “Please give us the paperwork.” You give it to them and you fill out every single line item that they want. They’re like, “Where’s form 202B?” It’s like, “What’s 202B?” “That’s a new form you need.” “Where does it say you need that?” “It’s hidden on page 67 of the website. Go back to the end of the line and come back.” You send it to them, wait three more days. They reply back, “Now we need this.”

I have to tell them the things that I said. I have to give them the value. I have to do run distributions and contributions through them. Other than that, the day-to-day workings, they have no idea what I’m up to. They like it that way.

I hate to say this because in real estate, everyone always talks about these grand slam deals and other deals and so forth. Your IRA has exploded in a few years. Here’s one of the things that as an investor, some people also don’t realize. When you do a lot of investing, as you said, sometimes deals pop up that somebody says, “I need to close on this in two days.” You don’t have time to bring a partner or something in and you look at numbers and say, “This is like a good deal.” It’s like seeing a house go on the market and you need to move quickly on. That happens with real estate deals as well. When we do the episode on 401(k)s, I’ll share a few of those stories that you basically sit there and you buy that with your IRA because you’ve got that money sitting there and it’s phenomenal what you can do with it. I can’t stress it enough that real estate is a numbers game and I hate talking about absurd returns. If you’ve sometimes got this money sitting on the sidelines, these deals do pop up when you stay active in this industry. It’s mind-blowing to me.

The younger you start with IRA, the more opportunity there is to exponentially explode. Click To Tweet

I recommend that people get themselves, whether you have a custodial account, a Quest IRA or something like that or whether you start your own checkbook control, set it up. Be ready. I’m convinced that when you are ready, things start floating your way a lot more. It’s such a gift, the whole Roth concept. My husband was not a real estate guy. All this time I’m getting more and more involved in real estate. We’ve had this conversation before. People tend to have their IRAs in whatever their parents invested in and you mindlessly follow their example because you grow up thinking that’s what you do. That’s what my husband has been doing.

His parents had stockbrokers. He’s got a stockbroker. I figured out that he made 5% in the last few years when the market totally boomed. He made 5% and that’s before the broker fees get taken out. I don’t even want to think about what the net is. I had an opportunity to come up in the spring of this year where my property manager came to me and said, “There is someone who has two duplexes that are right next door to each other. There’s a front house, two-bedroom house and in the back, there’s a one-bedroom house.” It’s two of them side by side and it’s a lady in her mid-80s. Her husband used to take care of the tenants, the houses and all the maintenance. Now he’s gone and she’s been struggling. The places have fallen into disrepair a bit.

The tenants are difficult. She wants out. She had them for sale at one point for $75,000 each, $150,000 for both. She realized that wasn’t going to happen. She had come down to $40,000 something each. That would have been a very fair price because each duplex has gross rents of $1,100 a month. $40,000 for an $11,000, that’s pretty good. My property manager says, “I know this lady and the guy who told me about this deal knows this lady. I could get both of them for $40,000.” I’m like, “Go make the offer. I’m ready.” I wasn’t ready. I didn’t have any liquidity in my accounts at that point, but I’m like, “Do it.” He did and she didn’t agree to $40,000 but she agreed to $45,000. My husband works in our basement. I flew down the stairs. I said, “Honey, your moment has come. It is fine for you to open a self-directed IRA.”

What I did was we put them under contract. Even though it was a cash sale, I asked for 60 days for the closing. We weren’t doing inspections. We weren’t getting a mortgage. We weren’t doing anything. We needed the time to open the account to get the self-directed IRA set up. I thought that was an insane amount of time. There’s no way it would take that long. It probably didn’t take eight weeks, but it probably took six and a half because of all the fumbling and bungling. IRA companies, I don’t know what it is. They fumble around. It takes them forever to do things. It took a bunch of time, but he got a checkbook control Roth IRA set up. I explained it to him very carefully. If you take the hit now and pay the taxes and make this a Roth, we and our children will never have to pay taxes on the income from this thing. $2,200 a month, at this point, it didn’t cost $45,000. We’re up to about $60,000, maybe $65,000 altogether to get these places all renovated and looking good. They’re all rented now and it’s amazing. He’s got $60,000 invested.

Two questions before we wrap up this episode because one’s a quiz question because you quizzed me once and I failed miserably, but I’ll ask that one first. Who is the Roth IRA named after? When did it start is my first question? It was by William Roth. It was established by the Taxpayer Relief Act of 1997 and named for its chief sponsor, Senator Roth of Delaware. The other question, because this is going to segue into our next episode, can you take a loan on a property with an IRA and how does that work?

Are you asking if you can finance a property?

Yes. If you have a property that costs $100,000 and you have $60,000 in your IRA, can you buy it?

Real estate is a numbers game. Click To Tweet

Yes, you can. You have to use a very specific type of loan called a nonrecourse loan, which means that if you default, all the banks can do or the lender can do is take the property. They can’t take your IRA. They can’t pursue you. They would take the property and liquidate it. If it doesn’t cover their whole loan, they can’t come after your IRA for the remainder, for the deficiency judgment. Those lenders, there aren’t a ton of them. The terms are not as good as you could go get on a traditional loan. Usually, the interest rates are a little higher, the term is shorter. They will have other limitations. I was reading this the other day, there are several of them. They won’t lend on flips. They won’t lend on properties that need more than X percent of the value in the renovation. They basically want fixed up good up and running properties, so that works. The other issue though is that in an IRA, if you have a loan on a property that you own in your IRA, all the income that comes in from that property is subject to UBIT, which is Unrelated Business Income Tax, which is 35% at this moment in time.

I’m not sure what the answer is, but you basically have to pay taxes on something.

It’s a good moment to remember. We are not experts. We don’t know what we’re talking about except that we’ve both in school a lot by the professionals that we work with. That’s what we’re regurgitating here. I can’t wait to hear you talk about 401(k)s because I have learned about the myriad differences and major benefits on LLC of a 401(k). I did talk to your guy about me having one and because I’m going to try and retire so quickly. He didn’t recommend that I do it because I’m not looking to finance properties. There are different financing rules with a 401(k). Let’s not spoil the surprise.

Let’s save that for the next episode. Any final thoughts, Gail, on IRAs?

I’ll say why are you all still sitting there? You should be running out right now to get some Roth retirement plan up. You can have a Roth 401(k) also but you’re right, now that I’m thinking about it, don’t go out yet. Wait until our next episode where Chris fills us in on everything about 401(k)s so you can understand which one might be the best for you.

The only comment I’ll make is we talk about talking to one of these specialists because you can do things like getting them for your kids possibly and many myriads of avenues you can go down and all of a sudden, I’ve got a daughter who is going to be going to college soon and I could basically have her assist and do some work for me and get her a Roth IRA with the money she’s getting paid. At fourteen, fifteen years old, you get $5,000 a year going into an account, cash, Roth that’s tax-free because they don’t earn enough. Look at what that would be in 30 years? It’s crazy.

Before we leave, I should mention that we do have an associate who finds people who are dying basically, either elderly people or people with a serious illness and sees if they want some money now, during their final time to do whatever would be helpful or help their family with some cash in return for them allowing him to put beneficiaries on to their IRA. If it’s not traditional, to convert it into a Roth IRA and he will pay all the expenses of that and set it up so that the beneficiaries that he’s adding will get a small amount of money. All his grandchildren have Roth IRAs that they’ve inherited from people. The thing is when you have one of those, it’s like a cash machine, particularly if you know how to increase the value of it. What an amazing thing for a child to have that throughout their life for education, for a wedding, for whatever that they would have access to those funds tax-free.

As always, I’d say take what we’ve tried to teach you and take it to the next level and talk to an expert, a specialist. There are many IRA firms out there that we can also recommend for people if you reach out to us. Along with that, I like to thank everyone for tuning in to this episode of the show. Please make sure to leave us a review on iTunes, Stitcher, Google Play or any other station you listen to us on. As always, go out and do some good deeds.

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