Investing Your IRA When Your Income is High but Your Balance is Low

www.HasslefreeCashflowInvesting.com

Investing Your Self-Directed IRA

When Your Income is High but

Your Balance is Low

Fourth Dimension Real Estate, Inc.

David Campbell - CEO

www.HassleFreeCashflowInvesting.com

uDirect IRA Services

Kaaren Hall - President

www.uDirectIRA.com

David Campbell - FounderHassle-Free Cashflow Investing

David Campbell - FounderHassle-Free Cashflow Investing

Former high school band director Self-made multi-millionaire

Real Estate investor / developer / broker+$800 million in transactional experience Financial educator / author / speaker

Houses, condo-conversion, multi-family, winery, resort, office, retail, medical office, production home building

Faculty Member: Investor Summit at Sea with Robert KiyosakiRegular Contributor to the Real Estate Guys Radio Show

Former high school band director Self-made multi-millionaire

Real Estate investor / developer / broker+$800 million in transactional experience Financial educator / author / speaker

Houses, condo-conversion, multi-family, winery, resort, office, retail, medical office, production home building

Faculty Member: Investor Summit at Sea with Robert KiyosakiRegular Contributor to the Real Estate Guys Radio Show



HusbandFather

Musician

Compelling Compelling WHYWHY


Today’s agenda

•when your IRA should own positive cash flow properties and when positive cash flow sucks• IRA profits as a high income earner starting with a relatively small self-directed IRA•deferred down payment strategies•the benefits and pitfalls of owning and financing “low money down properties” inside your IRA•how easy it is to use a self-directed IRA to maximize your profits while minimizing your tax bill•where to find non-recourse IRA financing at low interest rates

•• Kaaren Hall, PresidentKaaren Hall, President

•• uDirect IRA Services, LLCuDirect IRA Services, LLC

•• (866) 538(866) 538--35393539

•• [email protected]@uDirectIRA.com

uDirect IRA Services, LLC2522 Chambers Road, Ste 100

Tustin, CA 92780

• Stay to the end for a FREE report

• Using a Solo 401k to avoid UDFI

Begin with end in mindBegin with end in mind

��RELATIONSHIPSRELATIONSHIPS

��IDEASIDEAS

��OPPORTUNITIESOPPORTUNITIES

��NOT a sales pitchNOT a sales pitch

��NOT investment, legal, or tax adviceNOT investment, legal, or tax advice

STRESS isSTRESS is

when your when your expectationsexpectations

dondon’’t match your t match your realityreality

““Stress / distress is not created by a property; Stress / distress is not created by a property;

it is created by an ownerit is created by an owner’’s relationship to a property.s relationship to a property.””

--David CampbellDavid Campbell

DO YOU HAVEDO YOU HAVE

MISMATCHED?MISMATCHED?

expectationsexpectations

resourcesresources

teamteam

philosophy philosophy

emotional staminaemotional stamina

time horizontime horizon

strategystrategy

tacticstactics

Essential ResourcesEssential Resources

★ cash

★ cashflow

★ credit

★ equity

★ time

★ talent

★ strategic relationships

★ control of an opportunity

Typical IRA

THIS IS WHERE

THE PROFITS ARE

and why we self-direct


““Main StreamMain Stream”” Sources of Passive Income Sources of Passive Income

are Not an Optionare Not an Option

��Bonds and CDs do not outpace inflationBonds and CDs do not outpace inflation

��Stock market risky & unpredictableStock market risky & unpredictable

�� (ERISA withdrawal/ manipulated)(ERISA withdrawal/ manipulated)

��High risk of hyperHigh risk of hyper--inflationinflation

Cashflow in your IRA?


IRA CASHFLOW SUCKS

Higher cashflow = lower ROIInvesting transaction expensesIRA transaction expensesDecision making / time costYour contributions = cashflow


IRA CASHFLOW ROCKS

great for distribution erabetter than bonds / CDsbalancing a negative cashflowordinary income tax deferral


Cashflow Does NOTnecessarily correspond with RISK

Deferred Down Payment

When you don’t have a down paymentWhen you don’t need cashflow but the seller doesWhen the leverage enhances your returns

CAP > interest rate• $100,000 price

• $7,000 NOI

• 7 CAP

• $100,000 debt at 5% = $5k

• $7k income = $2,000 profit

Small IRA?

Small IRA?

Group investmentsPartnershipsLeverage future contributionsHigh LTV financingDeferred downpayment

What about amortization?

• $100,000 debt at 5% = $5,000 interest

• $7,000 NOI - $5,000 interest = $2,000 PROFIT

• If amortization is less than $2,000 then positive cashflow

• If amortization is greater than $2,000 then negative cashflow

What situation is appropriate

FOR YOU?

• There is no such thing as a good property or bad property / investment

• There is only appropriate and inappropriate ownership and timing.

Pitfalls of low money down inside your IRA

Increased probability of cash callInability to meet cash call = LOSSUnrelated Debt-Financed Income TaxMaximum contribution limits Inability to deduct losses in current yearLess benefit from high depreciation

Non-recourse = higher ratesGetting non-recourse debt at low rates

IRA debt needs to be non-recourse TO YOU

Investment partnersGroup investmentsSeller financingInstallment saleInvestment grade

tenantsBlended interest rates

•• How to SelfHow to Self--Direct Your Retirement SavingsDirect Your Retirement Savings

•• uDirect IRA Services, LLC is not a fiduciary and does not renderuDirect IRA Services, LLC is not a fiduciary and does not render tax, legal, tax, legal, accounting, investment, or other professional advice. If tax, leaccounting, investment, or other professional advice. If tax, legal, accounting, gal, accounting, investment, or other similar expert assistance is required, the investment, or other similar expert assistance is required, the services of a services of a

competent professional should be sought.competent professional should be sought.

SelfSelf--DirectionDirection

Why HavenWhy Haven’’t I Heard About This?t I Heard About This?

••Few attorneys are knowledgeable Few attorneys are knowledgeable

––About selfAbout self--directed plansdirected plans

••Few CPAs are knowledgeableFew CPAs are knowledgeable

––About selfAbout self--directed plansdirected plans

••IRS rules have allowed selfIRS rules have allowed self--direction since direction since IRAs were created in midIRAs were created in mid--1970s1970s

WhatWhat’’s the Difference?s the Difference?

•• Typical IRATypical IRA

•• StocksStocks

•• BondsBonds

•• Mutual FundsMutual Funds

•• CDCD’’ss

SelfSelf--Directed IRADirected IRA

•• Rental PropertyRental Property

•• NotesNotes

•• Private StockPrivate Stock

•• LLCLLC’’ss

•• Tax LiensTax Liens

•• Foreign PropertyForeign Property

•• Raw LandRaw Land

•• Etc.Etc.

What About Losses?What About Losses?

•• LossesLosses

•• Cannot be Cannot be written offwritten off taxestaxes

•• Cannot be Cannot be replacedreplaced in the retirement planin the retirement plan

What Are The Limits?What Are The Limits?

•• A SelfA Self--Directed IRA can invest in anything EXCEPTDirected IRA can invest in anything EXCEPT

1.1. Life Insurance PoliciesLife Insurance Policies

2.2. CollectiblesCollectibles1.1. ArtworksArtworks

2.2. CoinsCoins

3.3. Collectible CarsCollectible Cars

4.4. AntiquesAntiques

5.5. GemsGems

6.6. StampsStamps

7.7. RugsRugs

What if your funds are with your What if your funds are with your

current employer?current employer?

Your plan will probably NOT allow you to self-direct

Must wait until you leave the companyTo rollover retirement plan

You can request an “in-service” transfer from your current plan administrator.

Prohibited TransactionsProhibited Transactions

(IRS Publication 590)(IRS Publication 590)

••Borrowing money from the IRABorrowing money from the IRA

••Selling property to it.Selling property to it.

••Using it as security for a loan.Using it as security for a loan.

••Buying property for personal use (present or Buying property for personal use (present or future) with IRA funds.future) with IRA funds.

Disqualified PersonDisqualified Person

••Disqualified persons include your fiduciary and Disqualified persons include your fiduciary and

members of your family (spouse, ancestor, lineal members of your family (spouse, ancestor, lineal

descendant, and any spouse of a lineal descendant). descendant, and any spouse of a lineal descendant).

Qualified PersonsQualified Persons

••Aunts & UnclesAunts & Uncles

••CousinsCousins

••Brothers & SistersBrothers & Sisters

••Unrelated friendsUnrelated friends

••Nieces & NephewsNieces & Nephews

Prohibited TransactionsProhibited Transactions

••Neither you nor any disqualified people may Neither you nor any disqualified people may

benefit from IRA benefit from IRA

••Cannot buy, sell or exchange property Cannot buy, sell or exchange property

between plan and between plan and

––Self or Self or

––Disqualified peopleDisqualified people

••Cannot provide goods, services or facilitiesCannot provide goods, services or facilities

SelfSelf--Directed IRA Directed IRA -- StructureStructure

••YouYou

••Your IRAYour IRA

••TPATPA

••CustodianCustodian

Buying Real Estate With Your IRABuying Real Estate With Your IRA

•• ProsPros

1.1. Capital gains are tax freeCapital gains are tax free

2.2. Positive cash flow is tax free Positive cash flow is tax free

3.3. No time limit for holding propertyNo time limit for holding property

4.4. IRA can borrow moneyIRA can borrow money

–– Leverage your investmentLeverage your investment

5.5. Potential to earn a larger rate of return on Potential to earn a larger rate of return on

invested capitalinvested capital

Buying Real Estate With Your IRABuying Real Estate With Your IRA

•• ConsCons

1.1. No tax advantages of owning real estate No tax advantages of owning real estate

2.2. No deduction for capital lossesNo deduction for capital losses

3.3. You are solely responsible for all gains or You are solely responsible for all gains or

losseslosses

4.4. You cannot replace lossesYou cannot replace losses

Your IRA Can Take A Loan!Your IRA Can Take A Loan!

••Loan must be Loan must be

•• nonnon--recourserecourse

––Upon default, lender can seize subject property Upon default, lender can seize subject property

onlyonly

••Upon default, lender cannotUpon default, lender cannot

––Seize other IRA plan assetsSeize other IRA plan assets

––Seize your personal assetsSeize your personal assets

NonNon--Recourse LoansRecourse Loans

••Few lenders to choose fromFew lenders to choose from

––Must be a portfolio loanMust be a portfolio loan

––Cannot be sold on the secondary market Cannot be sold on the secondary market

••Larger down payment requiredLarger down payment required

––40% to 45%40% to 45%

••Cannot personally guarantee the loanCannot personally guarantee the loan

Personal GuaranteesPersonal Guarantees

••Personal guarantees by the IRA owner not permittedPersonal guarantees by the IRA owner not permitted

••Can be personally guaranteed by a third partyCan be personally guaranteed by a third party

––Must not be a Must not be a ““disqualifieddisqualified”” personperson

––Disqualified people areDisqualified people are

••AscendantsAscendants

••DescendantsDescendants

••Spouse and selfSpouse and self

••And othersAnd others

UDFI UDFI

••Unrelated Debt Financed Income taxUnrelated Debt Financed Income tax

••Any property held to produce income is debtAny property held to produce income is debt--

financed property if at any time during the financed property if at any time during the

tax year there was acquisition indebtedness tax year there was acquisition indebtedness

outstanding for the property.outstanding for the property.

UBITUBIT

••Unrelated Business Income TaxUnrelated Business Income Tax

••If a tax exempt entity engages in a business If a tax exempt entity engages in a business

that is unrelated to its primary purpose, any that is unrelated to its primary purpose, any

income derived from such business will be income derived from such business will be

subject to UBITsubject to UBIT

••IRS Pub 598IRS Pub 598

••UDFI & UBIT are reported on form 990UDFI & UBIT are reported on form 990--TT

Buying Real Estate Buying Real Estate -- The ProcessThe Process••Open a selfOpen a self--directed accountdirected account

••Shop for a propertyShop for a property

••Remember, itRemember, it’’s the IRA that is the buyers the IRA that is the buyer

••Custodian to sign Custodian to sign ““Offer to PurchaseOffer to Purchase””

••Submit a Buy Direction Letter for earnest money Submit a Buy Direction Letter for earnest money

depositdeposit

••Funds wired to closing from your IRAFunds wired to closing from your IRA

••Fund & RecordFund & Record

••Rents are made payable to your IRARents are made payable to your IRA

What if the IRA depletes its What if the IRA depletes its

reserves?reserves?

1.1. Make your yearly contributionMake your yearly contribution

2.2. Liquidate other assets in the IRALiquidate other assets in the IRA

3.3. Transfer money from other retirement Transfer money from other retirement accountsaccounts

4.4. Bring on a partnerBring on a partner

–– Not a disqualified personNot a disqualified person

5.5. IRA can get a loanIRA can get a loan

6.6. Sell the assetSell the asset

IRAIRA--Owned LLCOwned LLC

““Checkbook IRACheckbook IRA””

••IRA purchases shares of a newlyIRA purchases shares of a newly--formed LLC formed LLC

formed for this purposeformed for this purpose

••LLC receives funds in itLLC receives funds in it’’s checking accounts checking account

••LLC follows same rules as IRA for investingLLC follows same rules as IRA for investing

3 Types of Plans3 Types of Plans

•• IRAsIRAs

–– Individual Retirement AccountsIndividual Retirement Accounts

––What you are doing for your own retirementWhat you are doing for your own retirement

••Qualified PlansQualified Plans

––ERISA controlledERISA controlled

––Typically, what an employer provides youTypically, what an employer provides you

••Other PlansOther Plans

––EducationEducation

––HealthHealth

Types Of SelfTypes Of Self--Directed PlansDirected Plans

IRAsIRAs Qualified PlansQualified Plans Other PlansOther Plans

TraditionalTraditional 401K/ 457/ 403b401K/ 457/ 403b CoverdellCoverdell

RothRoth Defined BenefitDefined BenefitHealth Savings Health Savings

AccountAccount

SEPSEP Profit SharingProfit Sharing

SimpleSimple Individual KIndividual K

SpousalSpousal

How Do I SelfHow Do I Self--Direct?Direct?

1.1. Complete an applicationComplete an application

1.1. Provide copy of driverProvide copy of driver’’s licenses license

2.2. Copy of statementCopy of statement

2.2. Fund your accountFund your account

1.1. Annual ContributionAnnual Contribution

2.2. TransferTransfer

3.3. RolloverRollover

3.3. Tell us what you want to invest inTell us what you want to invest in


[email protected]


[email protected]

www.uDirectIRA.com

Questions / CounselingQuestions / Counseling

Investing Your IRA When Your Income is High but Your Balance is Low

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