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Self-Directed 401Ks / IRAsInvesting Retirement Funds in Real Estate
Bryan P. CalderonDirector of Business Development
United Country Strategic Partner Lead • (949) 705-4554 Bus• (949) 233-5866 Cell• [email protected]• www.accuplan.net/OC/
Benefits of Self-Directed IRAs and 401ks
For You
• Increases Your Buyer Pool
• Increases Your Buyer Client Purchasing Power
• Offers Added Value Service vs Other Realtors
Benefits of Self-Directed IRAs and 401ks
For Your Clients• Provides Investment Alternatives Other Than Stocks
and Bonds– Under valued real estate right now– Best investment over the next 5 – 10 years
• Personal Control of Investment Choices• Investment in What You Know and Can Visit / See• Tax Savings• Provides Funding Alternatives• Eliminates Bank Credit Availability Issues
Real Estate Investment Choices
• Single family homes• Multi-unit homes• Apartments• Condos• Commercial property• Developed and Undeveloped Land• Leveraged property• Mortgages, leases
Setting Up a Self-directed(SD) IRA
1. Identify a Self-directed IRA Administrator– Example: Accuplan Benefit Services
2. Set up an account ($50+)
3. Rollover or transfer existing IRA or 401k funds
4. Identify desired real estate
5. Purchase in the name of the SDIRA
Case Studies
1. Rental property2. Rental property with debt3. Property utilizing an LLC
Case Study – Rental Property
• John would like to purchase a rental condo for $100,000 he believes is a good investment
• He transfers $125,000 from his current IRA brokerage firm to a SDIRA account administrator.
• John initiates a contract to purchase the condo in the name of the SDIRA.
• John directs his SDIRA to purchase the property (ex: “Direction of Investment Letter”)
• The SDIRA administrator sends the escrow deposit of $5,000 to the title company and coordinates the closing
Case Study – Rental Property
• John reads and approves all closing documents and forwards to the SDIRA administrator for signatures at closing.
• The SDIRA administrator wires the SDIRA funds to the title company to close.
• The warranty deed is recorded and sent to the SDIRA.
Case Study – Rental Property
• The SDIRA is now the owner of record on the warranty deed
• John decides to hire a property manager– They find a tenant to lease the unit– Rents and expenses are handled by the property manager– The condo has a positive cash flow of $450 tax deferred
• John monitors his account via on-line statements
Case Study – Rental Property
• Two years later, the tenant offers to purchase the condo for $150,000
• A sales contract is prepared for $150,000
• The SDIRA Administrator coordinates the closing with the title company
• John reads and approves all closing documents
• Proceeds, after closing costs, are wired back to his SDIRA account
Case Study – Rental Property
Realized Return for the SDIRA Investment
• Initial Investment: $100,000
• Positive Cash Flow ($450 x 24 months) = $ 10,800• Gains from Sale ($150,00 - $100,000) = $ 50,000• Closing Costs = $ 20,000
• Return = $40,800 / $100,000 = 41% Tax Deferred
Case Study – Rental Property
• Same scenario as previous example, but John only has $50,000 in his SDIRA to invest.
• Seller agrees to hold a $50,000 non-recourse note for the remaining $50,000.– Non-recourse can only reposes the property.– The borrower will be the SDIRA.– Documents are reviewed by John and executed by the SDIRA
administrator.
• The SDIRA is the legal owner of the asset and will be responsible for monthly mortgage payments and other expenses.
Case Study – Rental Property with Debt
Case Study – Rental Property with DebtRealized Return for the SDIRA Investment
• Initial Investment: $50,000• Debt: $50,000
• Positive Cash Flow ($450 x 24 months) = $ 10,800
• Debt Service (7%) = $ 7,000
• Gains from Sale ($150,00 - $100,000) = $ 50,000
• Closing Costs = $ 7,500• Tax on 50% Profits (UBIT* – non IRA debt funding %) = $
6,500
• SDIRA Return = $13,650 / $50,000 = 27% Tax Deferred
* Unrelated Business Income Tax
Single LLCs and Multi Partner LLCs
• Can include multiple partners• Can include SD IRA, personal funds and debt• Cannot be paid for management• Checkbook control benefits• Esp. Important when buying at auction• Prorated distributions occur at liquidation
Disqualified PersonsCannot sell, exchange or lease property, lend your IRA money or credit, provide goods or services or use of the property.
• Vertical family members; spouse, children, parents, grandparents, grandchildren, and their spouses. *Siblings are “NOT” considered Disqualified*
• Anyone providing services to the Self-directed IRA
Bryan P. CalderonDirector of Business Development
United Country Strategic Partner Lead • (949) 705-4554 Bus• (949) 233-5866 Cell• [email protected]• www.accuplan.net/OC/
Self-Directed 401Ks / IRAsInvesting Retirement Funds in Real Estate
