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Using a Self-directed IRA to Create Hassle-free Cashflow
David Campbellwww.HasslefreeCashflowInvesting.com
Kaaren Hallwww.uDirectIRA.com
David Campbell
Former high school & college band director
Professional investorSelf-made multi-millionaire
Real estate developer
Real estate broker
Real estate & business advisor
Financial mentor
Over $800 million of real estate experience
Houses, condo-conversion, multi-family, winery, resort, office,
retail, medical office, commercial development, home building
California, Texas, North Carolina, Mexico, and Belize
Kaaren Hall, President
uDirect IRA Services, LLC
(866) 538-3539
uDirect IRA Services, LLC2522 Chambers Road, Ste 100
Tustin, CA 92780
Begin with end in mind
NOT a sales pitch
NOT investment, legal, or tax advice
NOT a securities offering
My Philanthropy: helping other people live more
abundant lives through hassle-free investments by
giving the knowledge and support for our others to
invest with mental tranquility.
WHAT THIS IS !
This IS a service to our existing clients
This IS an opportunity to introduce other
people to the possibility of living more abundant
lives through hassle-free investments by giving
the knowledge and support for our others to
invest with mental tranquility.
This IS a job interview
Husband
Father
Musician
Regular guy
Compelling WHY
Deployment Phase
If your desired monthly expenses are
less than
1% of your “liquid” NET worth
$500,000 cash x 1% ROI per month = $5,000
If your desired monthly expenses are
greater than
1% of your “liquid” NET worth
Aggregation Phase
$100,000 cash x 1% ROI per month = $1,000
If your desired monthly expenses are
greater than
1% of your “liquid” NET worth
Aggregation Phase
$100,000 cash x 1% ROI per month = $1,000
cash rate of return expectation
Essential Resources
cash
cashflow
credit
equity
time
talent
strategic relationships
control of an opportunity
LIMITED
INFINITE
LIMITED and INFINITE
How To Use SD IRA to Retire Younger
Than You Thought Possible
cash
cashflow
credit (other people’s)
equity
time
talent
strategic relationships
control of an opportunity
Traditional IRA
Self-Directed IRA
How to Self-Direct Your Retirement Savings
uDirect IRA Services, LLC is not a fiduciary and does not render tax, legal, accounting, investment, or other professional advice. If tax, legal, accounting, investment, or other similar expert assistance is required, the services of a competent professional should be sought.
Self-DirectionWhy Haven’t I Heard About This?
• Few attorneys are knowledgeable – About self-directed plans
• Few CPAs are knowledgeable– About self-directed plans
• IRS rules have allowed self-direction since IRAs were created in mid-1970s
What’s the Difference?
Typical IRA
• Stocks
• Bonds
• Mutual Funds
• CD’s
Self-Directed IRA
• Rental Property
• Notes
• Private Stock
• LLC’s
• Tax Liens
• Foreign Property
• Raw Land
• Etc.
What About Losses?
Losses
• Cannot be written off taxes
• Cannot be replaced in the retirement plan
What Are The Limits?
A Self-Directed IRA can invest in anything EXCEPT
1. Life Insurance Policies
2. Collectibles1. Artworks
2. Coins
3. Collectible Cars
4. Antiques
5. Gems
6. Stamps
7. Rugs
What if your funds are with your 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 Transactions(IRS Publication 590)
• Borrowing money from the IRA
• Selling property to it.
• Using it as security for a loan.
• Buying property for personal use (present or future) with IRA funds.
Disqualified Person
• Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant).
Qualified Persons
• Aunts & Uncles
• Cousins
• Brothers & Sisters
• Unrelated friends
• Nieces & Nephews
Prohibited Transactions
• Neither you nor any disqualified people may benefit from IRA
• Cannot buy, sell or exchange property between plan and
– Self or
– Disqualified people
• Cannot provide goods, services or facilities
Self-Directed IRA - Structure
• You
• Your IRA
• TPA
• Custodian
Buying Real Estate With Your IRA
Pros
1. Capital gains are tax free
2. Positive cash flow is tax free
3. No time limit for holding property
4. IRA can borrow money
– Leverage your investment
5. Potential to earn a larger rate of return on invested capital
Buying Real Estate With Your IRA
Cons
1. No tax advantages of owning real estate
2. No deduction for capital losses
3. You are solely responsible for all gains or losses
4. You cannot replace losses
Rule #1
There is no such thing as a good
property or bad property.
There is no such thing as a good
investment or bad investment.
There is only appropriate and
inappropriate ownership and
timing.
Inside IRA
Ordinary income
Short term capital gains
unable to 1031
Promissory notes
Flips
Syndications that are
active
Debt relief faster than
amortization
High equity properties
(form of asset protection)
Long term capital gains with
ability to 1031
Real estate with depreciation
that creates an immediately
USABLE passive loss
Get as much low rate high
LTV financing as you can
FIRST
Positive cash flowing assets
w/ no tax bill
No equity properties
Outside IRA
Your IRA Can Take A Loan!
• Loan must be
non-recourse
– Upon default, lender can seize subject property only
• Upon default, lender cannot
– Seize other IRA plan assets
– Seize your personal assets
Non-Recourse Loans
• Few lenders to choose from
– Must be a portfolio loan
– Cannot be sold on the secondary market
• Larger down payment required
– 40% to 45%
• Cannot personally guarantee the loan
Personal Guarantees
• Personal guarantees by the IRA owner not permitted
• Can be personally guaranteed by a third party
– Must not be a “disqualified” person
– Disqualified people are
• Ascendants
• Descendants
• Spouse and self
• And others
Getting the Best IRA
Financing Possible
Recourse to your allowed partner and
non-recourse TO YOU
Group investments
Seller financing
Swap debt with an non-disqualified
investor
Blended interest rate
UDFI
• Unrelated Debt Financed Income tax
• Any property held to produce income is debt-financed property if at any time during the tax year there was acquisition indebtedness outstanding for the property.
UBIT
• Unrelated Business Income Tax
• If a tax exempt entity engages in a business that is unrelated to its primary purpose, any income derived from such business will be subject to UBIT
• IRS Pub 598
• UDFI & UBIT are reported on form 990-T
Buying Real Estate - The Process• Open a self-directed account
• Shop for a property
• Remember, it’s the IRA that is the buyer
• Custodian to sign “Offer to Purchase”
• Submit a Buy Direction Letter for earnest money deposit
• Funds wired to closing from your IRA
• Fund & Record
• Rents are made payable to your IRA
Example
Father & Son buy a house
Father: 50% Cash
Son: 50% Traditional IRA
Title reads as:
Custodian FBO Son’s IRA 50%, Father 50%, TIC
Disqualified?
• Before the deal
– Father has no ownership
– Son’s Traditional IRA has no ownership
• Because this is a new deal
– Father and son do not have to worry about the “disqualified person” rule
Disqualified?
• After the deal
– The “disqualified person” rule comes into effect
• Neither Father nor Son can live in the condo
– No one who is disqualified to either of them can live in the house
• Ascendants, descendants, etc.
After the deal….
• After the deal
• Neither Father nor Son can ever buy out each other’s ownership
– They are disqualified to each other
• Expenses and profits are split
– 50% to Father
• Taxable
– 50% to Son’s Traditional IRA
• Tax-deferred
What if the IRA depletes its reserves?
1. Make your yearly contribution
2. Liquidate other assets in the IRA
3. Transfer money from other retirement accounts
4. Bring on a partner– Not a disqualified person
5. IRA can get a loan
6. Sell the asset
IRA-Owned LLC“Checkbook IRA”
• IRA purchases shares of a newly-formed LLC formed for this purpose
• LLC receives funds in it’s checking account
• LLC follows same rules as IRA for investing
3 Types of Plans
• IRAs– Individual Retirement Accounts
– What you are doing for your own retirement
• Qualified Plans– ERISA controlled
– Typically, what an employer provides you
• Other Plans– Education
– Health
Types Of Self-Directed Plans
IRAs Qualified Plans Other Plans
Traditional 401K/ 457/ 403b Coverdell
Roth Defined BenefitHealth Savings
Account
SEP Profit Sharing
Simple Individual K
Spousal
How Do I Self-Direct?
1. Complete an application1. Provide copy of driver’s license
2. Copy of statement
2. Fund your account1. Annual Contribution
2. Transfer
3. Rollover
3. Tell us what you want to invest in
Retiring Earlier Than You Thought Possible
Higher Yields
Distributions without depletion of principal
Laddered strategies: liquid and non-liquid real estate
Avoiding the early withdrawal penalty before 59 1/2
Retirement Distributions at Any Age
NO early withdrawal penalty
Substantially equal payments for 5 years
or until 59 ½ years old
Early withdrawal penalty EXEMPTION
“IRS 72 t”
$500,000 principal x 20% ROI = $100,000 annual profit
$50,000 profit distributed and TAXED as ordinary income
$50,000 income remains in IRA and is TAX DEFERRED
Rule #1
There is no such thing as a good
property or bad property.
There is no such thing as a good
investment or bad investment.
There is only appropriate and
inappropriate ownership and
timing.
9 CAP rate based on actual performance
15% cash on cash return from leveraged return
Compare this to stock market risk / reward
CAP RATE 9% 9%
Cash on Cash Return 9% 15%
Purchase Price $1,000,000 $1,000,000
Debt $0 $700,000
Equity $1,000,000 $300,000
Net Operating Income $90,000 $90,000
Debt Service $0 $45,000
Cash Flow $90,000 $45,000
FREE video training: www.HasslefreeCashflowInvesting.com
must take house
Paid $30,000
Rehab: $15,000
Appraised: $55,000
Rents: $550/month
Co-investing with your IRA
+ IRA $$$ =
Real estate equity as a down
party 1 party 2
property House Rite Aid
value $500,000 $4,000,000
debt $100,000 $2,500,000
real estate equity $400,000 $1,500,000
cash to balance $1,100,000 $0
TOTAL EQUITIES $1,500,000 $1,500,000
Personal Investment Philosophy
FREE Consultation
Passive investing
Active syndicating
Equity Exchanging
New Houses In Dallas
Hard Money Lending
Creative solutionist
Dallas Field Trip
REG Cruise
“There are no risky investments, only
risky investors.”
- Robert Kiyosaki
Real Estate Guys
10th Annual Investor Summit at SeaMarch 30th
– April 7th, 2012
FACULTY: Robert and Kim Kiyosaki, David Campbell,
Rich Dad Advisors - Ken McElroy, Wayne Palmer, Tom Wheelwright, Wayne Kirk,
Robert Helms and Russell Gray - Hosts of the Real Estate Guys Radio Program.
Using a Self-directed IRA to Create
Hassle-free Cashflow
David Campbellwww.HasslefreeCashflowInvesting.com
Kaaren Hallwww.uDirectIRA.com