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When you have an account with us, an I. We’re gonna say, All right, what do you wanna buy? Oh, I wanna buy the property at 1 23 Green Street. Cool. Your IRA owns that. It pays for it. It gets the income on it, it covers the expenses, and you get all the tax benefits retirement accounts have. So like when you sell that property for a profit, You don’t pay any taxes.
Just like if you had Facebook stock in your IRA and you sell it for a profit, the money goes back in your ira, but you don’t pay tax. What would your life look like if you could replace all of your working income with simple and conservative investments that could do it for you? Over the last 13 years, we’ve helped.
Thousands of clients transact over half a billion dollars in simple and conservative real estate transactions, allowing them to begin replacing their work income with real estate investment income. Each week we’ll be pulling back the curtain on the ins and outs of real time retirement based real estate transactions that will transform your financial future.
Even if you have no real estate experience, this is replace your income with. Kevin Clayson and Steve Earl. All right, everybody. Welcome to replace Your Income with Kevin and Steve. Steve, how you doing buddy? Kevin? I’m doing great. How was, uh, your, uh, holidays? You know what? Fantastic. Uh, it’s a new year and I’m thankful for that.
As you know, my family, we got to have a covid c. And so that was . That was fun. We got to hang out at home and stare at each other and, uh, take cold medicine. It was great. Good times. We had by all , but we’re good man. We’re all feeling good. We’re really thankful. We weren’t heavily affected by symptoms or anything, and so we’re, we’re really, really thankful.
Just happy to be back on the podcast and back recording, and we’ve got an awesome episode today, man. Are you excited for this one? Yeah, I really am. I mean, We’ve known our guests for a long, long time, for a number of years. We’ve done quite a bit of business with them over the years, and we’re excited, you know, for two, one, we’re gonna really kinda dive deep into his area of expertise in terms of what we want be offering to our clients.
So I’m, I’m super excited about this new year and in particular in this moment about this episode, uh, to really kinda dive deep into this more kinda a technical topic for that matter. Absolutely. And if you’re listening, everybody, thank you so much for listening, for sharing the podcast with friends and family.
Just a reminder, please go rate and review the podcast and share it whenever you can. Uh, we’re so thankful for all the messages we get from you, you telling us that you appreciate the content, and we are gonna continue in 2021 to bring you. Awesome. Content, and today is a really cool topic. So today’s one of those topics where some of you listening, you’re gonna kind of know a little bit about this, or maybe you’ve nibbled around the edges of this topic.
Maybe you’ve heard about it, but you’re not exactly sure either. What this. Investment tool is, or how it can work with or interact with real estate. But today we’re gonna be talking about an incredible financial tool, uh, called a self-directed ira, and we have literally the world’s foremost expert. Matt, can I call you the world?
Foremost expert. Are you comfortable with that? I, that’s how I look. I mean, you could say the universe, why limit the world? I mean, you’re right. I’m thinking small. Yeah, you’re totally right. The universe is, thank you, on self-directed IRAs. In fact, the guy literally wrote the handbook. He wrote the most incredible.
In the market on self-directed IRAs called the Self-Directed IRA Handbook. And so we are gonna be talking today to the one and only Matt Sorenson. And in addition to having Matt on, we have another special guest. So you guys have heard us talk about kind of what the done for you system is. We know many of you are clients, many of you are not.
We in the Done for You system, our clients always have somebody that holds their hand through the transaction process. This individual that’s joining us today is a Vice President of Client Fulfillment with our company. He works directly with our clients and directly with clients that are interacting with self-directed IRAs on a regular basis.
So we have our friend, our long term member of this D FY family and team, Nathan Larson here as well. Nate, what’s up man? How are you? Hey, I’m great. Thanks for having me. You bet. I’m so glad that you guys are both here because Nate, you interface and interact with clients all the time who ask questions about self-directed IRAs.
Matt, you are the universe’s foremost expert on self-directed IRAs, and so we are so excited to unpack this, to do a deep dive and to talk a little bit about what self-directed IRAs are, how they can impact you as a listener and if you’re investing in real estate. But I actually, I know Nate, you have had, um, extensive experience in working.
With Matt, I, I wanna turn just the mic over to you to talk a little bit about Matt and your experience with him. Cause I want everybody listening to understand this is an absolute treat and pleasure to have Matt here. He does not do a lot of podcasts because he’s in such high demand. He is so busy, but he was so gracious to come on today.
And so Nate, why don’t you tell everybody a little bit more about your experience with Matt. Yeah, yeah. I know. I’m gonna echo a lot of what Kevin had, has talked about. I’ve not used the universe in my phrase of introducing that . Well now though, I’ve certainly used the world’s foremost expert. That’s actually very common, uh, coming out of my mouth with, with clients and I actually, so I, I’ve worked with Dun for you coming up on 10 years, and I think Matt, We’ve been working with you for that amount of time or longer probably.
Yeah, and I, I just absolutely have a lot of respect and confidence, especially when I’m working with my clients and, and we’re talking about options when it comes to self-directing man, Matt is the guy to go to and he is definitely the world’s for the universe is foremost experts. And, and you know, back in two, I think it was 2013, Matt, you came out with your.
Yep. That’s when was first released. Yeah. Yeah. So I bought that book and, and I, I, this is a subject that I really love cause I’ve spent nine years at Fidelity Investments in retirement planning. And, and it’s funny, Matt, in nine years at Fidelity, I never heard about self-directing, actually want you to know about that.
But, but I bought that book and I actually consumed. And I hope this doesn’t offend some of our listeners, but I call it the Bible of self-directing . It’s, yeah, my reference and I go to it often. And that, that came out with the second edition of that book a couple years ago, right, Matt? Yeah, 2018. 2018. So highly, highly recommend that book.
And Matt, another thing too, I, and correct me if I’m wrong, you’ve actually. Stood before, Is it Congress and, and Well, I’ve done, yeah. So like some congressional committees have done reports on self-directed IRAs and large retirement accounts. So the Government Accountability Office has done a couple. So I’ve consulted with the government accountability office on reports that go to Congress and basically are critical of the IRS and stuff.
So , Yeah. Yeah, so that’s been good. I mean, I’ve been quoted in major media. I’ve been on TV on stuff for self-directed IRAs. I’m an attorney. I mean, I’m, I guess I am the guy in this subject. I, I like how you guys, you guys just could be my hype team. I just need to bring you guys, . Any other media or place I go.
I’m just gonna bring you guys any, anywhere you go, Matt, I’ll just, I’m happy to stand in your lobby of your office and if somebody says they’re coming to meet with you, I’m just gonna hype you up. That’s all. We’re just, I’ll stand in the office with you. Just real quick, um, I know that, uh, Nate’s gonna jump in and have, he’s got some great questions, uh, from Matt, but just to tell you everybody about Nate, just a little bit, you can see the photo or the, the background there has been to Everest on a of occasions now.
He’s an ER extraordinaire. He’s also a hunter and fisherman extraordinaire. He leaves the office at noon to go on a regular basis. , so stated, he’s in the financial planning industry before toy years, years ago, 10 years of, of financial planning prior to that. So he comes well qualified, he’s helped our clients purchase.
Into the thousands of properties. And so on the real estate side, he’s amazing. On the planning side, he’s amazing. He’s not a financial planner anymore, so he doesn’t give financial advice, but he, he helps our clients create, uh, their game plans, helps them put together their portfolios. And this self-directed concept is a big part of, of what he’s been able to help our clients do.
So I dunno if you have anything else, add to that, Kevin, but. Um, I’m, I’m excited for the questions that, uh, Nate’s got to present. Uh, our guests. Yeah, Nate. Nate is truly an expert. Matt is truly an expert and that’s why we invited you guys on because uh, Steve and I are not smart and you both are. So thank for coming on for that.
That’s nice that we can have, Yeah. It might be the first time, Steve, that we’ve had intelligence on the podcast, so this is good. I’m looking forward to it. It’s really at least the episodes that we do together. Yeah. Well, so here’s where I’d like. Start actually, because as we dive into this topic of self-directed IRAs, I always love to just kind of jump back to the basics.
And so, uh, before we kinda roll into some of the questions that I know Nate gets on a regular basis from clients, Matt, would you give us just a foundational understanding what is a self-directed ira? What is that tool? How does it fit? Into kind of the retirement framework and into the financial picture of most Americans that utilize it, or maybe, and there’s a lot of people I think, that don’t even really fully understand or know what it is.
So give us the basics. Yeah, so a self-directed IRA is basically a retirement account. This could be an ira, a Roth ira, a 401k, but it’s a retirement account that can invest into any asset allowed by law. And a lot of people just think, Well, I can buy stocks, bonds, and mutual funds with a retirement account.
You can, but that’s not it. So you can also. Rental real estate. Like I could buy a single family home. I could buy the duplex down the street. I can invest in X, Y, Z, llc, you know that, that owns real estate. Or I could, you know, I can do private money lending. I could buy cryptocurrency. Like these are all assets retirement accounts can own.
And so that’s what a self-directed IRA is. Is this really an IRA that’s with a company? That’s what our company does, directed ira, That’s my company I’m the CEO of where we have accounts, we’re like Fidelity, for example, but when you have an account with us, an ira, We’re gonna say, All right, what do you wanna buy?
Oh, I wanna buy the property at 1 23 Green Street. Cool. Your IRA owns that. It pays for it, it gets the income on it, it covers the expenses, and you get all the tax benefits retirement accounts have. So like when you sell that property for a profit, you don’t pay any taxes. Just like if you had Facebook stock in your IRA and you sell it for a profit, the money goes back in your ira, but you don’t pay tax.
So that’s the basics of the self-directed ira. There’s a lot to it. Um, but that’s the basics of it. Yeah. Thank you. You know, one of the things that I think is really powerful about this tool is that this is, you know, Steve and I on the podcast, we often are talking about topics and things that I would say are, are maybe a little bit of a counter culture to what a lot of people believe or what a lot of people interact with, especially on the real estate side and even just on kind of the income replacement side.
And I put self-directed IRAs. Same category because if you go to your local bank, if you go to your local financial planner, they are likely not going to recommend self-directed IRAs. You even alluded to it earlier, Matt, that this is something that, you know, somewhere like a Fidelity or whatever may not want you to know.
Yeah. And talk a little bit about why that is. Why is this self-directed IRA kind of a slightly different category, something that’s not as common? Well, when retirement accounts were first created, The people who decide who, like Wall Street, basically the broker dealers sought people were actually saving money in these accounts.
Like, well, crap, people are using these accounts. They became popular. There’s all these tax benefits, right? When you put money in a retirement account, you get tax deductions. When you make money off the investment, you don’t pay taxes that grow. It’s a great, it’s a good deal. And so all the broker dealers.
Well, we’re gonna set these accounts up and we’re gonna let them buy what we sell. So naturally, people just started setting up their IRAs and 401ks at places like Fidelity or Merrill Lynch or Morgan Stanley. But they just gave you a menu of investments you could pick. This wasn’t all the investments IRAs could own.
They’re just like, Well, if you have an account with us, you can buy what we sell. It’s kind of. Going to Taco Bell, like you’re, If you’re at Taco Bell, you’re gonna get what’s on the menu, right? You can eat roast beef sandwiches, You’re just not gonna get ’em at Taco Bell. Okay. So, and then the insurance industry came around and they’re like, Well, we wanna sell annuities to people with retirement accounts.
So like New York Life and Northwestern, all the insurance companies, they started setting up IRAs and what can you buy with them, what they sell? Annuities, . So IRAs have always been able to buy real estate from when they started, or invest in small businesses and private c. It’s just that the typical providers of these broker dealers, the typical financial advisors, they make money when you buy what they sell.
So you need to move to a custodian. There’s, you know, my company’s one of maybe 30 out there. You only need to know about directed IRA, though. Directed ira.com. And, but what do you have an account with us? We’re gonna say, All right, what do you wanna buy? Oh, you wanna buy the property? 1, 2, 3 Green Street, Knock yourself out.
Like we don’t sell you investment options. That’s what you’d use, like done for you. But you come to us and say, Hey, I’ve got money at Fidelity. Fidelity won’t let me do this. Great. Set up your account here. Transfer money from your IRA at Fidelity, your, your prior 401k over to us at directed ira, and we’ll let you buy the real estate.
You guys are basically like the cool uncle is, you know, that’s kind of how it’s like, Hey, what do you wanna buy? No, but that you guys are the cool uncle, but there is still limitations to what somebody can or can’t do with a self-directed ira. Yeah. Maybe talk a little bit about that as we kind of lay this foundation.
Yeah. So the first principle is, You have to buy investment assets. So when we’re talking about real estate, I’m not talking about buying a home. You’re gonna live in, okay, we’re not talking about buying a second residence that maybe you rent out sometime. Maybe you use, This has gotta be held strictly for investment purposes.
And there’s these rule calls, prohibited transactions. So it’s like four chapters in my book. Um, it’s a big one, but it basically means you can’t use the assets that your retirement account on. So if you buy real estate, you can’t use the real. Your spouse can’t, your kids can’t, your parents can’t, like your close family.
You also can’t make money off the real estate. Like you can’t get a commission if you’re an agent and to buy it. So as long as you think, I’m not doing this for personal real estate, like Matt Soton wants to buy a second home to, to go, you know, get out of the summer in Arizona, but I wanna buy just a rental property, which is important for me to say too.
I do this myself. Like, and I think that’s for anybody that’s trying to teach you something like do they do this themselves? Like I actually own real estate in my IRA and and in my 401k. And so it’s important that people realize that like, I’m doing this myself. But those are investment properties. Like they’re single family rentals.
You know, I got third party tenants in ’em. I’m not using ’em for personal use. They’re held for investment. And I wanted to just kind of reiterate something Matt said. So if I have a self-directed IRA and I’m buying investment real estate, we, one of the markets we do a lot in is Orlando. I can’t buy a property in Orlando and go stay in it, you know, two weeks a year when I wanna go to Disney World.
I can’t do that, but I can keep it and hold it as a rental investment property. Generating income that’s going back to that self-directed ira. Yep. And one, one thing that I, I think is, is really important too, as kind of like the last foundational piece before we start to get into some of these other specifics is how Matt talk about how somebody can get.
Self-directed ira. There’s a lot of people that have 401ks, 401ks with employers or, or they’ve got, uh, IRAs right now. How does one begin the process to work with a company like yours to have a self-directed IRA that they can start utilizing in this way? So if you already have an ira, you’re good. So let’s say you’ve already, you got an IRA at TD Ameritrade or a Roth IRA at your bank or whatever, you can always just transfer that to directed IRA and set up a self-directed ira.
So it’s just kinda like going from Charles Schwab to Merrill Lynch. You know, you’re just changing the company that cuts the account. So IRAs are easy. If you already earned an IRA format, you can always move. Self-directed ira, whether that’s a SEP or Roth or traditional, doesn’t matter. Your IRA account, you can even self-direct an HSA in a covered out.
Now, if you have a prior employer 401k, you can also self-direct. So it’s like, Oh, I don’t work here anymore. I’ve got a 401k. We can roll that over to a traditional self-directed ira. Now, the snag that most people run into is like, Hey Matt, I’ve got a 401k. I’m 45 and I still work at the company though most 401k provi, most companies.
401K plans will restrict you from rolling the money out while you’re still employed. Now there’s one, there’s a couple ways to get around that, but it’s a little complicated. Basically, if you’re over 59 and a half your retirement plan agent, you still work there. You can generally move your 401k out. Some companies also allow for an in-service withdrawal, but everyone else is good.
The one snag again, is it’s a 401K or a company retirement plan, and I still work there. That’s where some people can get locked. Yeah. Awesome. Thank you. Hey, Matt, when maybe we’ll have you touch on this. So as I’m working with clients and we’re talking about utilizing retirement plan money to purchase real estate, you know, the, the question always comes up, Can I finance a property that’s held within my, my self-directed ira?
And I know that you and I have talked about this. You talk a lot about it in your book, but could you, could you touch on that for our listeners as well? Yeah, yeah. So there’s always two ways to go. One is just buy the property outright with cash, right? I’ve got enough cash in my retirement account, and let’s face it, there’s $30 trillion in retirement accounts in the us.
Okay, this is where most Americans have cash to invest. And so if you’re spending time learning real estate, why are you not investing in it with your retirement account? You know? And so there’s 30 trillion out there in it, so you can buy with just the cash, and that’s, that’s common. Some clients will say, You know what though?
I’ve got, let’s say I’ve got 150 grand. I know real estate prices have been going up, but just stick with me on the example cause I can do the math on it. Okay. , I say you got 150 grand. Like I can buy one single family rental in this market I want with cash outright for one 50. Or Matt, maybe I could buy three properties and I’ll put 50 grand down on each one and I can own three of these single family rentals.
What should I do now? Nate? The issue you brought up. Can I get a mortgage in the first place? And there’s really two considerations. People should decide if they’re saying, Do I buy one with cash or three and get a loan? The first is when you get a loan with an ira. The first consideration is it has to be what’s called a non-recourse loan.
Okay, and this is why you gotta work with people like done for you or people that know what the heck this is. Cuz your typical agent out there, or typical, you know, seller, whoever it is, they don’t get these rules very well, . So you gotta use a non-recourse loan provider, which basically is a mortgage loan that says the bank’s like, we’re gonna loan you the.
But if you default, we can’t go after the ira, we can’t go after you personally. We’ll just foreclose and take the property back, and that’s a requirement for retirement plan rules. The only type of loan you can get with your ira buying real estate is a non-recourse loan. So that’s hurdle number one. And those loans, by the way, take about 30% down.
That’s why it gave the 50,000 examples. You’re have to put some money down. You’re not gonna go to a 10 or 20%. The second thing you have to know is, When you buy property with debt, the IRS now looks at the deal and says, All right, Matt, you bought a property for one 50, but you only put 50,000 of retirement cash into the deal.
The other a hundred thousand that made up the 150 purchase was debt. That was not retirement plan dollars. So we’re gonna tax the profits you make on this. That represents the debt. In this example, two thirds of the deal is debt, so therefore two thirds of the profit are gonna get subjected to tax. This is a tax for IRAs.
It’s called U D F I, and it’s complicated to get into a quick podcast, but I do have a chapter in my book. I got some free articles on my site, but, But you just need to know that it’s not a crushing tax. It’s capital gains rates. When you basically sell the property and have a gain, it’s 37% tax max. If you have cash flow, net rental income, but a lot of our clients depreciation everything, they get to expense so they don’t run into it year to year.
So that’s the two things. If you’re gonna leverage with debt, make sure it’s non-recourse and just make sure you know about U D F I. So what, what I have clients say, Well Matt, should I still do that? My, if these are good properties, you want three for sure. Cause you’re gonna be paying down the debt as you go.
You, you’re only paying tax if you’re making money. Right, so I’m gonna make three times as much money cause I have three properties instead of one. So to me, I think it’s a no brainer to go with non-recourse loans. If you’re getting good properties that can cash flow. Yeah, I think, I think it’s a fabulous concept if, if you can leverage and, and even with that tax, cuz when we think self-directed IRAs or IRAs, 401ks, we think tax deferred, right?
Yeah. But there is some tax that could potentially, you know, But I remember having a conversation about this with Matt long ago. And it’s, you look at the numbers, the numbers don’t lie. Does the return on investment? Yeah. Does it still make it, Does it still make sense? Is it worth your time, worth your while?
And yeah. It, it definitely can. And, and the power of having one property working for you versus three properties. Yeah, three properties is, is fabulous. That’s just, that’s to maximize your investment, your, your. All right. And now we’ve been doing this long enough. You know, I mean I started this in 2006 and so like I’ve seen clients that’ve been doing it for 10 years that were more aggressive like that.
Mm-hmm. . And what do you think their accounts look like now compared to the one that just bought one or two with cash? Yeah, like night and day difference appreciation they’ve had over the last 10 years. Plus the cash flow getting rents have increased dramatically over the last 10 years. It’s awesome.
Yeah. So Matt, maybe switching gears, there’s another question that we always get. So do you buy and hold property directly into your ira And this, this really kind of starts to stem around liability and protection options with property and holding property. And I, I know that you really advocate an llc, specifically what you call an IRA llc.
Yeah. So could you extrapolate on that for our listeners a little bit? Yeah, so we do a little bit of both. It depends on what clients want. I think most clients are gonna prefer an ira, llc. So if you have an ira, you can have an IRA own the real estate directly. So let’s say it’s Nate, it’s your ira. So like on the purchase contract to buy, the property’s gonna be directed.
Trust company, fbo, Nate Larson, ira, like, and that’s the buyer. Nate’s gonna approve the contract and then send it to us and we actually sign it. Cuz like when you’re buying with your ira, it’s not Nate Larson buying it, it’s his IRA and it’s all gotta be done in your IRA custodian’s name. So then it’s what’s gonna be on the deed when you close directed Trust company.
Fbo, Nate Larson, ira. Then we’re gonna receive the income on the IRA account. When you’ve got expenses on the property, you’re gonna instruct us to pay the expenses outta the ira. And so sometimes that can be a little clunky for clients. If you have property management, it’s not bad because the property manager, once you buy the property, can deal with the income and expense, and there’s not a lot of back and forth.
They’re just sending the cash flow back to the ira. But a lot of clients, particularly if they’re like doing rehab deals or they just want what we call checkbook control, rather than the IRA owned the property. They’re gonna have their IRA own an llc, 100%, and we’re gonna invest their cash into a new LLC that the IRA owns.
100%. The LLC is gonna then own the property, and so here like it’s Nate, it’s Nate’s ira, it’s gonna be directed Trust Company, fbo, Nate Larson, but it’s gonna own a hundred percent of X, Y, Z investment, llc, X, Y, Z investments, llc. Nate can be the manager of that. He doesn’t own. But his IRA owns it a hundred percent, but he can be the manager of it.
He doesn’t get a salary or can’t take compensation, but his manager, he can go set up an LLC checking account wherever he wants to bank with. We invest the IRA money into the llc. It goes into a bank account. Now he can write the check for the earnest money to buy it. The LLCs on the contract. He signs his manager, he signs a closing.
He can deal with the contractors to rehab it or whatever you’re doing. And then income comes into the llc. Something goes wrong on a property. You wanna update something, you cut a check from the llc. It’s just, it gives clients a lot more control. And a lot of our real estate clients, you know, a lot of our IRA clients, they do real estate already.
And with their personal dollars, they’ve already, And so they kind of know what to do better and they like having more control. They don’t, they don’t like going through us for a lot of stuff, and we don’t either. So it’s, you know, it’s, for us, it’s like, we’ll do it either way. But I think from a customer satisfactions.
Side of things. A lot of them like the llc now it costs you hundred bucks. Like we set ’em up in our law firm at a separate law firm, KS Lawyers, and it’s 800 bucks plus the state filing fee to do the llc. So there’s an additional cost to do it. But if you think of over the life of the owning a property, you know, most states you’re filing fees are pretty low unless you’re in California.
But I don’t think. I don’t think your clients are buying single families or rentals in California right now, so No, no. They’re usually good there, . Yeah, and I, I find that too with clients. It just, it, it just becomes a lot more convenient with that. You call it checkbook control, just to, to work with property manager directly.
You can cut checks, you can pay expenses a lot more easily than, than having to go directly through the, through the self-directed. Which people still do and it’s not, it’s not overwhelming, but it’s just a lot easier with that. Yeah. And you mentioned liability too earlier. There is some liability protection with the llc, so if something happens on the property, tenant slips and falls, you know, they can’t sue the IRA and get anything else in it.
They can’t come after you as the IRA owner. There’re just stuck at the llc, so there’s some liability protection perks there. Okay. You know, in talking you brought up, uh, the ex, you know, the, the cost of the llc. If you have an LLC that’s owned by the ira, what about the cost to have a self-directed ira?
Talk a little bit about Yeah. That and how that works. So, our fee structure, basically at directed ira, it’s 2 95 is your annual account fee. You have a $50 new account fee and then a $50, Let’s say if you wanna buy, set up an llc, there’s a $50 fee to invest it in the llc. So your first year you’re gonna maybe have 400.
A fees to set up the IRA and get it invested. And then after that, you’re gonna have a 2 95 annual account fee. So that’s just pretty much you’re gonna pay is 300 bucks a year. Some other of our competitors, just so you know, will charge based on the size of your account. And then some of them will also charge per assets.
So if you have multiple assets, they’ll charge you per asset. So we just decide to keep it clean and easy. 2 95 annual fee. And. That, that’s basically how our fee structure works. Yeah, and I think too, you want, when you’re looking at that, you know, fees are important, right? For like, just like any service, you know, I mean, I don’t care who you are.
Like you can’t just, you know, fees are part of the factor, of the equation. And then, you know, you want the expertise, which is I think what we have and then the right customer service. And so, You can look up us like we’re a licensed trust company. We’re audited by the banking department here. We have third party CPA audits from rsm, which is the largest accounting firm.
Like, you know, we’re, we’re our financial institution and we’re clean, but we also like take care of our customers, which you can see from our reviews on Google too and just what our clients think about us. It, Matt, talk real quick to that item because I think that that’s a big, I think it’s a huge difference between your company and many other.
Ira custodian where you’ve taken that one extra step. Yeah. To where you’ve on, on an annual basis, and maybe just talk to that for just a. Yeah, so there’s one other type of provider in our industry that’s called a third party administrator or a tpa, and they’re kind of like a middleman, and so they don’t actually custody your IRA account.
They’re just like the middleman that has control of your account, but they’re not. Examined by the banking department. They’re not audited and, but they have all the controls just as if they had a license. And so, you know, when we start our company, there’s like, there’s no way in heck I would do that.
Cause I don’t like sending clients to a place like that. And so we just said, we’re just gonna do the full thing from one, from the get go. So that’s one thing to look for is look for companies that at least have like trust company in their name. Like we we’re directed trust company. We’re a licensed trust company and, and that’s a big distinction in the industry.
It means that they’re audited. It means that a banking department goes in and examines them every year, which is good for you as the customer. I’ll say, you know, we have a law firm, our law firm office has an office in U Time in Phoenix. But like, you know, there was one of the big IRA providers that did a lot of accounts in Utah called American Pension Services.
They were a third party administrator. The owner of the company was like, you know, a guy that drove a pickup truck and had grandkids and was a cowboy. The last guy you’d think stole 40 million, You know, and what happened to the account holders? They all had to take a haircut on their account. They lo they, everybody lost money.
And so I think the biggest reason that happened is he wasn’t examined. There’s no bank examiners, there’s no auditors in his office. They would’ve caught that stuff year. And so that’s a big distinction, I think gives a little security to people with their account. Yeah. And I, and it’s, it’s interesting that you bring that up because, you know, we, we had some clients that had money with American Pension and it was painful.
Yeah. I had family members, I had an account there. I mean, crap. You know, And so, so knowing Matt that he structured this and, and you know, I, I spent a short time working at Chase Bank and, and working with Bank Examiner. He’s never a fun. When you have your auditor coming to the, you’re going, Oh, and so the Matts objecting himself to that upfront, I think really says a lot and exudes a lot of confidence actually.
In addition to, to all of his expertise. You know, that backs this up. And so, yeah. So that’s, that’s awesome. Hey, Matt, maybe, maybe another quick question with your experience with this. What are, what are you, what are some of the big mistakes that you see people making with self-directing? Ooh, good question.
The one I think for new people is they don’t get educated before they. Like, I think a lot of ’em, they’re like, they’ve heard it, but they didn’t take time to look into it. And they are, they’re closing on a property on Friday. It’s like they’re, they’re setting up their account on a Wednesday and they’re like, Yeah, and we’re closing on Friday.
It’s like, slow down Tiger . I dunno. We’re gonna pull this off. I mean, I can get your stuff done fast here, but like, there’s a lot of hoops. Like I gotta move your money from where it’s at. You know, that’s gonna take three to five days, depending on the current provider of your retirement. I mean, I can set up your account same day, but we gotta get the money over from where it’s at.
You’ve gotta do the contract in the name of the ira. If you’re doing an llc, you gotta set up the llc, which takes time at the state and the lawyer to draft it. So like, so the one thing I think the biggest mistake is new people think that it doesn’t matter that there’s like some switch flipper in the back that we’re just gonna say flip the switch on for Nate Larson’s IRA so we can close on Friday.
You know, it ain’t that easy. It’s not complicated either, but I would say if you give yourself a couple weeks lead time, prefer it’ll be before you make the offer, you should be good and you don’t have to get all the money over there. One thing too is like get the IRA set. Get the LLC going. You don’t, If you got like 300 grand, you know, and you want it in the market, just send over 10.
But get it going, Get the IRA going, get the LLC going, get some money in it so you can make an earnest money deposit. Then when you find a deal, you can execute on it and move the rest of the money over later and we can get it in before you close. So just do some little planning time wise on the front.
And I think that’d be the first. Okay. The second one I would say is there’s a lot of cool creative strategies you can do with IRAs too. Like I can partner my IRA with my spouse’s IRA in a deal. I can bring in my dad’s ira, I can put in personal cash in my ira. There’s all these. Tricky cool things you can do, but they’re complicated , so, So you, and, and the, the way the tax code works is it’s like square pegs and round holes and, and or like maybe coloring within the lines.
Like you have to fit exactly. Your, your structure into this. You can’t be like, Well, I wanna do that, but can we do this? No, there’s no like outs of this. Like you have to fit exactly in it. And so, so there’s some creative cool things you can do with partnering, but um, just again, get educated on it first.
And I’ll say the self-directed desires like, It’s not rocket science. I, I like to tell clients it’s like learning a new board game. That’s how easy it is. But you can’t just like open the board up and start moving pieces around, you know, like you’re gonna screw it up. You need to play with someone else who’s played the game before or you need to read the damn rule book.
Okay. Just do one of those two things before you start moving the pieces. Okay. So, and my book, The Self-Directed Iron Handbook is the rule book, um, and you, you know, Nate and people had done for you have, you know, Hundreds, not thousands of clients do. This summer, I’ve helped tens of thousands of clients and we’re doing it every day at directed ira, so we can help hold your hand too, but just take some time to get educated.
It’s not rocket science, it’s more like a board game. And once you’ve done it once, once you’ve done your first real estate deal, it’s the same thing the next time. So now you just, you’re just playing. It’s the same rule book, it’s the same procedure and steps, and you, you’ll have it down. Yeah, and I, I agree with that.
I, you know, in helping clients, it’s, it’s doable, but you do wanna know what you’re getting into. And I, I always pitch that, you know, that book, the stuff that did Ira book and then Matt on his website too, on directed ira.com, they just have a lot of resources there to, to really listen to and learn. And it’s fun.
I, I mean, I love this. It’s, you know, coming from, you know, retirement planning and fidelity investments and, and diving into real estate and using retirement funds to purchase that. I love that. You know, we we’re breaking away from kind of this cultural tradition, traditional 401k, you’re in stocks, bonds, eft, all that type of stuff.
And it’s, to me, it’s really fun because that fidelity you were always targeting. Other retirement plans outside of, of Fidelity at, at Schwab and trying to get him to consolidate at Fidelity. What’s amazing to me is, is almost 10 years at done for you, is how much retirement funds we see coming outta the stock market and into real estate.
But there’s such a power with real estate just as an investment. And that’s a, that’s a different topic, but just a diversification aspect of, of diversifying retirement funds into real estate. Powerful. And it’s, and it’s fun that way. Yeah, I think it’s, it’s a lot of people don’t put the two together.
Retirement accounts and real. and for people that know real estate, you know, that’s the one thing I had, one of my, the reason I got into self-directing in the first place, I had a really high net worth client who’s a real estate developer. This is back in like 2006 or seven. And he found out he could do real estate in a Roth IRA in particular, cuz he would do big deals that he’d make a lot of money on.
And he was like, Wait, if I do this deal in a Roth thra, I pay no tax. I’m like, no tax. When I hit retirement at 59, half it’s gonna come out. No tax, no tax. He’s like, Why has nobody told me this? He’s like, I have the, a big law firm that represents me in all my stuff. A big five CPA firm, or four whatever’s left that does my taxes.
I have high end financial advisors, a couple of them. I mean, this guy was a big deal and he is like, not one of them told me this. They all know I make money off real estate, hand over foot fist. Like I’m just like, I, I know how to make money that way. No one paired this two together. They told me to max out my retirement accounts and go by mutual funds.
He’s like, It was ridiculous. Yeah. I’m glad that you actually brought that up, Matt, because I was gonna ask you the question about self-directed Roth IRAs. Is it possible to have a self-directed Roth ira? If somebody has a Roth, can they maneuver that? Or if somebody has an existing ira, could they turn it into a self-directed Roth ira?
Maybe talk a little bit about some of the rough aspects, and maybe even just define it real quick in case somebody isn’t familiar with what that. Yeah, absolutely. So the traditional IRAs or traditional 401ks is the most common. And that is, you know, you put your money in, you got a tax deduction, and you know, we all got sucked in on the tax deductions cuz you wanted to save taxes.
Now, so we did traditional accounts, but Roth IRAs become more and more popular in a Roth ira. When you put your money in, you don’t get a tax reduction, but the benefit is the money now grows and when it comes out, it comes out totally tax. When I pull money out of a traditional ira, I pay taxes. I’m pulling the money out at retirement.
Now, hopefully retirement, you know, you’re not gonna have a salary. You’re gonna own all your assets, you’re not gonna have a mortgage and all this. You’ll and you’ll, you can control the money you pull out of your retirement account so you stay in a low tax bracket. But the Roth is awesome because you don’t have to worry about that.
On the way out, it’s totally tax free. I mean, I have clients with, I mean I have clients with a hundred million plus Roth IRAs. I have clients in the 10 million plus a ton of ’em, and what they are is they’re more strategic people that are like really good at one particular thing and they know how to make money at that and they figure it out.
The Roth IRA is a tax free way for me to just build my wealth in the long term. And so, yeah, I mean like that one client I mentioned that was the real estate developer. I mean, he basically bought an option on some land by the highway. It was just agricultural property. He got an option on it. His Roth IRA paid $10,000 for the option to purchase that property for like 400 grand, and he had like a five year term to execute the option.
Well, my client knew that this county and state were planning a freeway exit to go in right next to this property, which happened in two or three years. That property went from agricultural property worth 400 grand, or maybe it was actually probably 300. He got an option price way higher than what it was worth at the time, but now was worth like over one and a half million dollars.
And he sold it to another developer that developed it out. Probably a gas station and a subway there. I don’t know, but . But he made a, So he put 10,000 bucks from his Roth ira. He made over a million dollar profit into his Roth ira. Now this guy does deals like that five times a. I mean he, that’s like the kind of deal maker that guy is.
And because he’s got in the real estate game, he learned it. He got good at one thing and he just kind of got after it. But then the next level for him was, All right, how do I do these deals and keep all the money? Like he made a million bucks. But if he did that personally, he would’ve kept like 550,000 of that maybe after he paid his federal and state taxes.
Now he’s like, Wait a second. I can keep the whole million and I just gotta wait till I’m 59 and a half to put out my. Game over. And I was like, You know what, that was pretty cool. I’m gonna ride away. Yeah, that’s and and you bring up a good point too, cuz you know, when people hear stories about somebody that has, you know, a really large Roth self-directed Roth IRA or a, a large Roth IRA or ira, you know, I think the question is, my gosh, how does that take place?
Because even a self-directed ira, you are still, you still have the same limitations of how much money. You can fund into ira, It’s still what the IRS allows, but within that environment is where you can grow your wealth, right? Yeah, absolutely. So there’s no cap on how large the account can be. So you can only put 6,000 a year into a traditional IRA or Roth ira.
Now, most of the Roth IRA clients we have, most of them convert. They had maybe a hundred or 200 grand of traditional dollars that they’re like, All right, I need enough money to do some deals to grow this, and I’m gonna put my sweetheart deals in the Roth ira, so let me convert a hundred or 200 grand of my traditional to Roth, which you can do if you have traditional dollars.
You’re like, I wanna be into Roth. If you convert a hundred grand to Roth, though. You’re gonna get 10 99 or a hundred thousand, you’re gonna have to pay that in taxes, that’s taken in income and pay some taxes on it when you convert. But the upside is now that a hundred thousand as it grows over the next 20, 30 years, whatever your retirement horizon is.
It’s gonna come out all tax free. So hopefully that a hundred thousand by then is maybe a million bucks just from the growth. And so, and I, and you know, I gave like the example of the home run hit, you know, like that client on the option deal, that was a home run. But so many of our clients, and even just me, I’m just a base hitter.
You know, I just hit base hits with some single family rentals that are low maintenance for me. I can run my businesses and do my thing, but you know what, Once you get a number of properties stacked up, it’s like loading the bases and the market rises like it has recently, and all those people that have owned real estate over the last 10 years, you’re like, Doing pretty good now.
My rent’s been going up, you know what I mean? Like it’s all these things that just start hitting and now you’re scoring a ton of runs cuz you got men on base and that’s all you know. Don’t, don’t worry about hitting home runs for anyone that’s new in real estate, like you’re not gonna hit a home run probably on your first deal.
Just get on base, get some hits. You’ll score some runs. Boy, Matt, you don’t know baseball. You’re gonna be like, I dunno what these guys talking about. , What was that? So, Hey, hey, Matt. One, one last question. Maybe, or maybe Steve and Kevin have something else, but you know, I, I mentioned back in, and I left Fidelity back in 2005, so it’s, it’s been a while and like I’d mentioned, I didn’t even hear about the concept of self-directing back then.
And it, and, and I think you’re kind of breaking the mold of traditional, you know, traditional investments with the self-directing, you know, opportunity. But you see the awareness and the movement growing and gravitating more towards self-directing. Oh, for sure. The industry has grown crazy over the last really 15 years.
It’s grown significantly. There’s over a million accounts that are self-directed now. That’s a pretty big number, and I just see it from ourselves. I mean, you know, we get, I get a few accounts a day, at least from Fidelity, you know, and a ton more from TD Ameritrade and Schwab every day, like every day. And so, and that’s, and my competitors are too.
And so, You know, you’re, we’re seeing that that growth in the industry, but it’s also into other areas. Like real estate’s the most common, but you see it into private company investments has gotten much more popular. Startups, we have a lot of clients investing into VC funds and private equity funds.
Crypto has been hot as of late, you know, it got hot three years ago and it got hot again. Just recently, and. All these alternative assets are stuff you can own with an ira. And as technology’s made it easier, and frankly, the internet has gotten information out better and one other change has happened too.
You will see more financial advisors and we work with a bunch that refer our customers to us. That are RIAs, they’re registered investment advisors. And so they’re not broker dealers where they’re paid if they sell you something like they only get paid on assets under management. So to them, they don’t care if you buy a mutual fund or you buy a rental property, like they’re managing it either way and they make the same fee.
And so RIAs have been a really growing space in the financial services industry and they, they like self-directed IRA because their clients like ’em and they can finally like do what their clients want without having to worry. Well, if you buy real estate, don’t make any commiss. Well, I still charge an under management fee the same.
I love it so much. You know what I love about this whole discussion is we kind of wrap this up is Steve and I often on this podcast, we talk about the fact we, we have, one of our most popular episodes is called Why Traditional Retirement? Why the Traditional Retirement System is Broken, Right? And, and so much of this, when people rely on the traditional sort of of retirement approach, you’re forfeiting total control.
You’re forfeiting the ability to control. Where you want those dollars to go and how you wanna control, you’re, you’re forfeiting control of really kind of in some ways how much money you want to be able to live off of one day. There’s things that you’re sacrificing when you buy into kind of this traditional investment world.
What we love about real estate, what we love about self-directed IRAs is it gives you back the control so that you are the one in the driver’s seat. You are the one calling the. For what your financial future should look like and, and what I would say to anybody listening is, if you have money in retirement account, you 100% need to visit directed ira.
Look at what the options are that are available to you. I know Matt and his team would be happy to share that with you. You know, yes, there could be some hurdles if you’re still working with an employer and you’ve got a 401K with them. But if you have an old 401k, if you’ve got an existing ira, if you have an existing IRA that you want to convert to a Roth or a self-directed.
Ira, there’s all of these options that can give you back the control to be able to kind of say, Look, I’m gonna take the financial bull, bull by the horns and I’m gonna choose to go control the kind of hits that I wanna go get. And I love that you were talking about baseball, Matt, because I don’t know if you know, but uh, Steve and I are actually working on a book right now.
We have a podcast about this exact idea that we say. Stop swinging for the fences. We’re gonna play. If you know the, if you remember the movie Moneyball, you know all they, Yeah, right. I mean, that’s what we do with real estate. It’s how do we get on base financially? Cuz if you can hit enough singles with enough consistency over a long enough amount of time, you will win the game.
100 times out of 100. Yeah. And that’s the idea. How do we minimize, mitigate risk, give back the control and utilize something like a self-directed ira that is a phenomenal and incredible tool. And so as we kind of wrap up, Matt, I would love for you to just kind of, if you could give your best, most power sage, you know, advice for someone considering this or thinking about, you know, self-directing their retirement accounts, what would be the thing that you would wanna share with the people?
Listen. I think the biggest thing is take action, but be educated. Okay. I, there’s this, what I’ve seen over the years in just doing this and I, you know, I have a law firm. I used to practice as a lawyer too, a little bit. Um, a lot. I don’t, I don’t do that much anymore. But is there was kind of like, There’s three categories of people out there.
The first category was they read everything. They went to everything. They went to every meeting, every club, everything. And they didn’t do anything. They were just so damn scared. But they want, they love learning and thinking about it and dreaming about it, and they never took action. Every deal was too expensive, too tough.
It just didn’t fit exactly. And so they did nothing. And then on the other extreme, you get people who are so excited, who scratch the surface on learning what to do and they make mistakes and they buy dumb stuff. They work with bad companies. They, they just make dumb decisions cuz they don’t know what’s right for them and they.
So then there’s the third carrier that’s like the perfect middle, sweet spot of like, they got a little bit of education. They don’t overthink it. They’re willing to take some risk. You’re gonna have to take risk in investing. Okay? You’re not gonna find the perfect property and hit a home run the first time up.
You’re just not. I even think like the first property I bought in my retirement account, single family rental, I mean, I bought this thing for 85 grand. It rents 1100 a month. And I was like, I don’t. I don’t know. You know, it like seven years ago, this property’s been awesome, right? And now it’s, it’s like worth way more.
I get like 1300 bucks a month out of it. And, and I, you know, I’ve al I’ve almost paid down the mortgage entirely on it, and it’s like, it’s been a great property. And, and, but then I remember like the next ones I was trying to buy and it’s like, ugh, this one’s 20 grand more than the last one I bought. And I was, Dude, you have to get over that.
And so, so there’s kind of this sweet spot I think of get some education. Don’t overthink it. You’re gonna take some risks, but you’ve gotta get up to bat, like sticking with the baseball. You’ve gotta get up there. You’ve got take, take your swings like you’re gonna get on base. And, and I think too, stick to the basics.
That’s why like I buy single family rentals. I do some private money lending with some clients of mine that are like really good at it. And, but like, I like single family rentals is because you’re the, what you can lose on it is, it’s pretty hard to lose money on single family rentals. Like I could go buy Tesla stock right now.
Crap. I don’t know if that thing’s gonna take a dump or Bitcoin. I mean, who knows? But real. You know, it’s gonna go up, It’s not gonna go down. Real estate just does not go down. I mean, rarely does it go down. So, and you never have a wipe out. Like, you know, if it goes down, like the financial crisis we had, it comes back and there’s certain assets that do totally wipe out.
So know that, that you can do real estate and it’s. It’s gonna be hard to wipe out on it. I love that. I love that so much. So guys, here’s the deal. Visit directed ira.com. If you visit that website, you are going to have access to tons of stuff that Matt and his team has have provided videos and resources to help you do the kind of research and get the education that you need so that you can take action.
I know Matt’s team. Awesome. They stand ready to serve and help. Also, Matt, where’s the best place for them to go and buy your book? The Self-Directed IRA Handbook. So, um, my book’s website is s d Ira for self-directed ira, s d ira handbook.com. You can also get it on Amazon. Doesn’t really matter to me. You know, if you buy it on my website, it does come signed You.
Doesn’t happen. Well, there you go. Pretty big deal there. Way to do it. Yeah. That’s pretty good. Yeah, and I mean, people turn those around on eBay and sell ’em for double So , uh, but I’ve sold 30,000 copies of that book and it, it really is like, I am proud of the book. I mean, I took like six years to write the, the thing, you know, I was just gonna swear there for a second, but I did six years, right?
By weekends were destroyed. But like I knew that if I wrote. Like and, and approach it from what a client needs to know that people would appreciate it. And I tell a lot of people, like even my family, like, Matt, should I buy your book? And I’m like, I don’t know. Are you into the topic? If you’re into the topic, you’ll love it, but it’s kind of like the best book on karate.
You know, like if you get the best book on karate and you’re into karate, you love it. If you get the best book on karate and you’re not into karate, you’re like, This book sucks. Yeah. So if you’re into the topic, if you’re thinking about buying real estate and you have a retirement account or crap, you wanna use someone else’s retirement account to do real estate deals, the book I think is really valuable and useful, and I think you’ll, I think people like it.
Well, and that you just introduced something that we may wanna do another episode in the future. There are ways for people that maybe don’t have their own resources to potentially partner with others that do have self-directed IRAs to help get so that you can invest in real estate. That’s an entirely different topic.
Could be a whole nother podcast. It’s more of a creative strategy, but a powerful one. So I’m actually glad that you teased that. Yeah. Maybe if you will, and Matt, sometime in the future, we’ll have you back on and talk a little bit about that. Cause that is a fascinating topic. A lot of people could benefit from.
Yeah, let’s do it. Awesome. Well, thank you so much, Matt. Nate, thank you so much for joining us. Guys. Thank you for listening to the podcast. Thank you for tuning in. This has been such an awesome discussion. I feel like we so very barely scratched the surface of what this topic is and what it could do for someone that I would love to continue the discussion sometime, Matt.
But thank you for sharing your time. Thank you for being with us today. And guys, thank you for listening to Replace Your Income. Steve, I’m gonna give you the last word, unless sign off. Hey, I can’t tell. Uh, Matt, uh, thank you enough for being here today is a great honor, uh, great privilege. And of course, uh, this was the first time we’ve had, uh, Nate on the, on the podcast.
So thanks for being here as well, Nate. And, uh, look forward to, uh, next week. Everybody have a great one. Yeah. Thanks guys. Thank you. Thanks for joining us on Replace Your Income with Kevin and Steve. Do you wanna learn more about our company done for you real estate and to see if you qualify right now today to begin replacing your income with simple and conservative real estate investing done for you?
Visit dfy intro.com. Click the orange button, watch. Super quick webinar and fill out the little form on the right side of the page. You’ll know within 60 seconds if you qualify to begin replacing your income right away. As always, please rate, review and share the podcast with friends and family. And until next time, just remember income replacement for you and your family may only be one property away.
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