The Best Kept Wealth Building Secret

Published on Forbes

Most people have some type of retirement account. I have learned that the mass majority have no idea how they work, what they are invested in or what rate of return they are earning. Does this describe you?

The only time you think about your hard-earned money that is sitting in a retirement account is when the media causes mass panic as they shout from the rooftops that the stock market has crashed and the majority of Americans have lost their retirement savings in the blink of an eye. You then rush to figure out if your money is safe or if it indeed has vanished into thin air. This is all very preventable and we are here to show you how. You have more control than you think!

The Secret is that you can actually use your IRA funds to Invest in Real Estate.

I will tell you step by step how to accomplish this and show you some examples of why Multifamily Real Estate is the preferred asset type.

Did You Know That You Can Self-Direct Your IRA?

Maybe it's because most IRAs are administered by banks and investment brokers who offer limited investment products and want you to keep your money with them. It’s crazy that less than 2% of IRA investments are self-directed. Most investors don’t know that the IRS allows a much broader range of investments using a self-directed IRA. (SDIRA)

As a multifamily syndicator, we consider SDIRAs a good source for capital. Our investors are thrilled to know that this is possible and are anxious to understand how it works once we introduce the option to them. Multifamily syndications are an excellent fit for IRA holders, and we are here to make sure that you know all your options.

Why Do People Choose to Self-Direct Their IRA?

Most IRA investors do not plan on touching the money in their investment accounts for years, so they don’t mind putting them in longer term 5 to 10-year investments. We are able to offer them much better returns without the risks associated with a potential stock market correction. Many IRA’s are sitting in 1-2% money markets/CDs. In addition, our SDIRA investors really like that no outside approval is needed. The IRA owner makes all the decisions and then simply puts the wheels in motion for the investments of their choosing.

In general, everyday people, real estate investors and white-collar professionals looking to self-direct will fall into one or more of the following categories.

  • The cash they have in an IRA retirement plan provides them with the needed capital for an investment.

  • They have stock market fatigue and are tired of and uncomfortable investing in conventional stocks, bonds and mutual funds.

  • They like that they get the tax benefits of the rents, dividends and profits coming back to their IRA tax-deferred or in some cases tax-free.

Self-Directed Plans

  • These plans are available to a multitude of assets and accounts including:

  • Traditional IRA

  • Roth IRA

  • Simple IRA

  • Individual(k) Plan

  • Defined Benefit


  • Former 401k, 403 b, 457, TSP

Many individuals are concerned that moving money will be taxable, but this is NOT the case. Moving funds to a self-directed account is fairly simple. This depends on the account you are moving from and the type of account you are moving to. Transfers and direct rollovers can be done an unlimited amount of times and can be done in partial amounts as well which are also non-taxable. In most cases transfers and rollovers are done fairly quickly with funds arriving in the hands of your custodial account manager within 1-2 weeks.

Types of Assets Available

The funds in your SDIRA can be used to invest in multifamily syndications, but they can also be used to invest in assets such as:

  • LLCs

  • Farm animals

  • Partnerships

  • Cryptocurrency

  • Movie projects

  • Oil/gas

  • Precious metals

  • Private stock

  • Equipment leasing

  • Forex accounts

What You Can’t Do with a Self-Directed IRA

There are only a few prohibited investments. You CANNOT purchase life insurance or collectibles. You also CANNOT use your IRA to benefit you or a disqualified person.

What is a disqualified person? The following people are disqualified from benefiting from your self-directed IRA:

  • You and your spouse

  • Your parents and grandparents

  • Your children and grandchildren

  • Your son-in-law or daughter-in-law

  • Or any business our entity controlled by one of the above

However, your siblings, aunts, uncles and cousins are not on the disqualified list! These rules also prohibit an IRA holder from personally guaranteeing a loan associated with your IRA.

Warning: Using Leverage Can Create Tax Issues

If you are able to secure a non-recourse loan (a loan which is not personally guaranteed by the IRA holder) to purchase real estate with your IRA, the unrelated business taxable income (“UBTI”) rules could be triggered. Causing the UBIT tax to be applied.

Note – There is an exemption from this tax that is available for 401(k) plans pursuant to IRC 514(c)(9). Visit with your custodian about your options in this case. If the UBTI tax is triggered and tax is due, IRS Form 990-T must be timely filed so that you can exempt yourself from unexpected taxation.

Three Step Process

Before you can invest, you need to get an account established and funds transferred or rolled over to the self-directed account with a reputable custodian. It is a three step process.

  1. Open an account with the custodian of your choice. This will only take a few minutes. They will pair you with your own client services representative who will guide you every step of the way and make sure that everything is done correctly.

  2. Add funds by making a cash contribution or by moving or transferring funds from an existing IRA or 401(k) plan.

  3. Choose from a wide variety of alternative investments that include real estate, notes and mortgages, single member LLCs, private placements and private stock, precious metals and/or many other qualified assets.

Let’s assume that you have a former 401k plan through a previous employer and a few IRAs totaling $200K. Your new SDIRA can now invest in rental or rehab property, lend money to friends, invest in multifamily, etc. You understand after an in-depth conversation with your account custodian that any income that you receive from your investment must go back into your IRA and any expenses related to the investment must be paid out of the IRA. You were also informed that your custodian as the administrator of your account will receive and deposit the funds into your account on your behalf and pay all bills at their discretion.

It is very important for you to understand that your custodian will not give investment advice or do the due-diligence necessary for any investment for you.

Example #1

You decide that you want to buy a single-family condo/home and rent it out. You identify a property and make the offer in the name of your IRA.

Purchase Price: $150,000

Gross Rent: $2,000

Monthly Exp (avg): $750

Net Rent: $1,250 (10%)

After 3 years:

Accrued Rents $45,000 (tax free)

Example #2

You’ve always wanted to flip a house. After searching diligently for the perfect flip, you identify a property being sold as is and make an offer in the name of your IRA. The deal is funded and closed in the IRA. You select the contractors to repair the property because you know that your IRA must pay for all the repairs to the property using funds in the IRA. After all the work is done, you sell the property for a nice profit.

Acquisition: $100,000

Repairs: $40,000

Sales Price: $180,000

Taxes Due: $0 (if not in IRA, 25% or $30K)

Profit: $40,000

Cash to IRA: $180,000

Example #3

You realize that owning rentals and doing a fix-n-flip is a lot of work. You have always heard that there is really good money in private lending. You attend a few REIA meetings while learning how to invest in real estate.l You meet Kathy who is looking for money for her next rehab property. She needs $100,000 for the purchase and the repairs. You decide to be Kathy’s private lender and provide the financing for her next project. You and Kathy agree on the terms of the loan and the payments Kathy will have to make. Kathy then makes payments to your IRA instead of to the bank.

Loan Amount: $100,000

Interest: $2,000 ($500/mo x 4 mos)

% of Profit $10,000

Total Earnings: $12,000

ROI $12,000/$100,000 = 12%

Example #4

You really want to get your money working for you and are looking for true passive investments. Then you keep hearing these stories of investors doubling their money by investing in apartment complexes. You are then introduced to a Multifamily Real Estate Investor, and he has a private syndication offering to purchase a value-add apartment complex. They provide you with the Subscription documents and Prospectus and you spend the next couple days watching his webinar and getting all of your questions answered. You run the investment by your IRA custodian to make sure that it is a suitable investment. You are so excited because you do not have to find the tenants, hire contractors, manage the rehab or deal with maintenance. You also realize that investing in multifamily gives you the advantage of economies of scale. One vacancy will not cause a huge issue like it does with single family residential investments. The Investor and his team have hired a professional third-party property management company to manage the complex and this gives you comfort.

Your custodian account manager helps you to fill out all the paperwork in the name of the IRA and after you ensure that your IRA trust ID is used instead of your social security number, you approve the documents and your custodian then wires the funds to the escrow account provided by the investor and his sponsor team.

All the dividends and profits are then sent to your IRA custodian to be deposited in your IRA account. When the asset sells in the future, all proceeds will be sent to the IRA custodian and deposited into your IRA account.

You are amazed that you are able to have full control of the assets your IRA funds can be used for and thrilled that you found this Multifamily Real Estate Investor and can invest passively with him and his team for a projected 20% average annual return. You had no idea this was even possible!

79 views0 comments