Did you know that you can invest your qualified IRA and 401k retirement plans into Real Estate, Hard Money Lending (Notes) and other investment opportunities like Multi Unit Apartments and Oil production programs? Most people don’t know the rules as it relates to this type of investment strategy. I know I didn’t for a long time.

 

I have been investing for 20 years and I have taught real estate & investment seminars all over the country but it wasn’t until about 5 years ago that I learned how I could use my retirement account dollars to significantly increase my retirement account balance rapidly. I was educated by a great company called Entrust Administrative Services (www.entrustfl.com). They are a custodian of your money. They will not recommend the investment opportunities but they will serve as a custodian for your retirement dollars. This process is simple and inexpensive.

 

Most people invest their money with a financial advisor who tells them exactly what to invest their money into. This is great, but these advisors will educate people on their products and will advise them to invest into the things their companies typically offer. They do not offer much education on opportunities that do not  benefit them. This is understandable, but it doesn’t give you the entire picture.

 

Here is the readers digest version and if you would like to learn more then you may contact us or visit the Entrust website that I have provided for you. The tax laws only allow a person to invest a certain amount of money into their retirement plan each year, generally $5,000.00 per year. However there is no tax law that prohibits how much money your retirement account can earn each year from its investments. This is a key factor in this strategy. The whole point of this strategy is that everything you earn is tax deferred until such time as you are required to take money out and pay taxes. This means that all of the taxes that you would normally pay on a gain stays in the account and can be reinvested (deferred). The hope is that the additional money that the retirement fund will gain by having the additional dollars to invest, will far offset the taxes that may be paid later.

 

Here are some examples of investments that I have made through my retirement account:

 

1)      I purchased real estate for Cash. There are essentially two ways to purchase real estate with your retirement account. The first way is to purchase the property outright. Let’s say you found a 3 bedroom 2 bath home that could be purchased in North Carolina for $50,000. The property needs new AC, paint and carpet so let’s say that equates to $10,000 in repairs. The IRA account could purchase and take title to the property. The IRA account could also fund the renovations. Let’s say that the IRA did that and there was $62,000 invested into this property (with closing costs) from the IRA. Now let’s say this property has a value of $85,000 and it will rent for 850/month. The property is leased. Every month the rent goes directly into the IRA account. The IRA account also pays the insurance and taxes each year. Here is some math:

a.       $62,000 invested directly from the IRA

b.      Taxes and Insurance are $1500 per year payable yearly from the IRA

c.       Net rents per year after management (10%), taxes and insurance- $7,680

d.      This is a little better than a 12% annual return while leased

e.       Plus the current equity in the home

 f.       Plus the annual appreciation that is gained

 

Two years later you sell the property and net a profit of $15,000 after expenses and that money also goes directly into your IRA account. Therefore you had a total return on this property of about 24% annually. In addition you put the $62,000 original principle back into the IRA- Not bad. To learn more about this click here

 

2)      I purchase real estate with a loan- The argument can be that you didn’t leverage yourself. The second way to purchase real estate through your IRA would be to borrow money through a non recourse loan. “Non Recourse” means that there is no recourse to the IRA but only to the property itself. The loan to value will be about 70% for this type of loan meaning that the IRA would have to put down a minimum of 30% to purchase the property in the name of the IRA. The IRA would borrow the money and everything else would be the same but you now have to factor in the increased loan costs and the monthly debt service on the loan.

a.       Let’s say the IRA now has to account for a mortgage payment of say $250.00 per month.

b.      A down payment of $15,000 plus the $5,000 in closing cost plus $10,000 in rehab. The total cash investment is now 30,000 (not $62,000).

c.       With the $250.00 mortgage payment so now the net yearly income after taxes and insurance is now $4,680.00

d.      This makes the annual return somewhere around 16% annually while leased

e.       Plus the current equity in the home

 f.       Plus the annual appreciation that is gained

 

The lesson is that leveraging will increase the return in most cases. To learn more about this click here

 

3)      I invested into an Oil Production partnership- I was able to invest $25,000 into a seasoned oil development company that was operating out of the country of Trinidad. This was a nice diversification to add to my successful real estate portfolio. I really liked this investment due to the cost of oil and gas. The timing seemed right. The biggest key is to find a group with a proven track record in a field that was rich with oil. Another key factor is to avoid what we call “wildcat” drillers. “Wildcat” drillers do not run any tests on the land before they drill due to the cost. This is very risky because you don’t really know where the oil is and how much.  Developmental drillers, such as the one that I invested with, had already invested money into the geological studies that determined where the oil was located and that it was actually there. This significantly reduced risk. Essentially, my $25,000 unit was a part of a larger group- 30 units let’s say or $750,000. I owned my pro rata portion of all oil production that came out of the ground. The best part is that I got my entire principle back within 18 months. After that the owner of the field got 40% of the production and the other partners got 60% (split on their pro rate share). I stand to get checks for 5 years and the returns are around 18-25% annually. I decided to invest more money, all from my IRA. The money comes every month and it goes right back into the IRA. Think about this- in 18 months I get my $25,000 back and reinvest it into something else meanwhile that same oil investment continues to pay for years to come. Wow! To learn more about this click here.

 

4)      I purchased a multi unit apartment building- I was able to purchase a 164 unit apartment building with other partners. This property cost was 8 million dollars and a group of partners all got together and put up 2 million to buy it from our retirement accounts in a partnership. Each partner invested $50-100,000. The property is professionally managed and the bank oversees all dollars in and out as they have a vested interest. The property stands to make a tremendous amount of money once the bad renters are removed and good renters are added not to mention the introduction of capital improvements being made to the property itself. This is a great 5 year strategy. It is also a great time to own affordable apartments because when people cannot buy they rent. This puts the owners in a great position. This also enables a smaller investor to purchase a larger asset that wouldn’t be attainable otherwise.

 

5)      I became a Hard Money Lender- I loaned short term, high interest, low LTV loans to investors who were buying property and cashing out within 6 months of the purchase. My returns are 15% annually. I get checks every month and if they don’t pay then I can take the real estate asset back from them. To date I have never had to foreclose on anyone. If you invest 100,000 (minimum was 50k) into a note, you get a check every month for $1,250. This will go directly into the retirement account. Imagine how quickly you will double your retirement. The key factor is getting into the right properties with the right borrowers.

 

I hope these have given you some great ideas as to how you can invest your retirement account for greater gains than the advisors will be able to give you. When I moved my money from my financial advisor, he didn’t even stop me because he stated that he couldn’t touch the returns I was getting on my own. We at Coast 2 Coast Investments can assist you in doing all of the things mentioned above. We specialize in retirement account investing and we have all of the professionals that you will need to be successful. To learn more about Coast 2 Coast and these opportunities click here……