Tag Archives: 1031

Self-Directed IRA's with Checkbook Control

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I’ve blogged a couple of times here at RCG about the benefits of using a self-directed IRA as an investment vehicle in Real Estate. When I originally set up my self-directed IRA I loved that I could control my retirement funds not only in securities but also in real estate.  I had to educate myself by going to seminars and talking to the very few professionals that understood the process.  However, being the do-it-yourselfer that I am, I traveled around the country attending lectures and symposiums until it started sinking in.

I set up the necessary entity and rolled over my IRAs and Seps into a Roth IRA (paid the taxes), created an LLC to buy real estate and then had my Roth IRA buy shares of my LLC.  This has been a great way to grow my retirement without ever paying taxes on the profit.

However, the process was cumbersome, I never thoroughly understood all the scary laws that would cause my self-directed IRA to loose it’s status and it was not always as fluid as I’d like. Such as, had I not attended the classes and done the research, I wouldn’t have even known where to go for the custodian that is required for the self directed retirement accounts.  Then, I had to find an accountant and an attorney who specialized in them.  Again, hard to find. Additionally, although I had good services in my chosen Custodial firm, I didn’t have the ability to have instant access to my money, and in fact, last month when I tried to take a distribution, it took over a week to get the cash out.  What if I’d wanted to purchase a home on the court house steps? not possible with my custodian.  I have no access to cash, nor do I have a checkbook.

Recently, I’ve learned of a completely different way of investing with self-directed IRA’s that’s being offered here in our own backyard in Bellevue. The company is Guidant Financial and they’ve developed a product called ‘Auriga’, (Auriga means the helsman of one’s ship).  Although I’m just learning about this product, it appears to provide a solution to problems inherent in custodial accounts by giving you checkbook control over your retirement account.  Additionally, Auriga allows the retirement plan to invest in more than one vehicle, and in my case, where my LLC sometimes is the owner of the property and sometimes is the lender, it allows for that flexibility.  Guidant is not the Custodial account for the IRA’s but has negotiated a very low fee thru a custodial business relationship that is not based on increasing the fee as the account increases in value.  The way they do this is to provide all the legal, accounting and guidance as Guidant Financial, streamlining the custodial role. My experience is that the custodian cannot give legal, accounting or much of any assistance in setting up the account, but it does charge an annual fee based on the size of the account.  Guidant Financial charges a one time up front fee for the setup and continued operation of the IRA account.  As your account value grows, the costs are still minimal since the custodian fees are not based on the size of the asset.

For more information there will be a webinar on Wednesday November 28 at 12pm.  I know that I’m not alone out there with my self-directed real estate investing.

Update on 'Fix and Flip'

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Last Thursday night at the monthly REIA meeting, Than Merrill from A&E’s Flip this House presented an informative glance into his working business model. Than does more than 120 flips a year at an average of $27,000 each.  Although he just started 3 years ago, Than is making millions using a system that he partially nabbed from other fix and flip coaches and partially created himself.  Than acknowledged up front that he would have something to sell, otherwise he says there would be no point in his flying out here from Conneticut to talk to a real estate investment club.  And sell he did.  What my husband and I heard prompted us to attend an all day (9 to later than 6!) on Sunday.  The cost was relatively inexpensive and anything for more education, right?

In case you’re wondering who attends a real estate investing club, I noticed a lot of people with jobs looking for a way to become self employed, and I also found many who had already made that transition using real estate investment as monthly income.  Others are there to build a retirement using real estate investing as a vehicle. Some using sefl-directed vehicles and others doing 1031’s to defer taxes. 

Finding the right investment opportunity is key to good real estate investing. The investments we have been buying are properties that can be subdivided or converted to condos or in some other way create equity through development.  I hate fix and flips because there have been such a small margin in them because we didn’t knowi how to find below market inventory consistently.  We only do the fix and flips if we can increase the value of an adjacent lot or new construction home we sell by increasing the value of the original home. 

However, working with distressed sellers to find below market inventory is a business that is very specialized and can by itself be a full time occupation.  And there are a lot of investment buyers looking to buy discounted properties.  Finding these discounted properties has always eluded me. We have tried the foreclosure route and bought on the court house steps, but too many investors were chasing these properties and they still got bid up, squeezing that profit margin.  Then there are title issues and the fact that you can’t really inspect the properties among other things, like needing cash!

Than has been successful finding these sellers and I wanted to know how. He has multiple sources and mutliple campaigns aimed at finding anyone willing to sell at a discount. His program is a highly developed marketing and operation.  We were impressed, So, we decided to invest in the systems thinking that if he can make them work, so can we (I know, pretty egotistical). The cost of the program is pretty reasonable, the bigger cost being the time to attend a one week boot camp and implement the multiple marketing systems. But we’re looking forward to it and hope soon to have a source of ‘cents on the dollar’ real estate to offer our buyers.  Keep tuned.

BTW, still nothing definitive on the Contractor’s issue, i.e., an owner needing a contractor’s license to perform work on real estate prior to a sale if within one year. We’re all waiting for clarification.