Real Estate Investment Strategy – Self Directed IRA
Another “Buy and Hold Investment Strategy” … The Self Directed IRA
From the desk of: Andy Meyers – The Equity Finders
Did you know that there are over 7 Trillion dollars in IRAs?
If you are one of these investors, you probably don’t need me to tell you that your investment has been “treading water” for the last couple of years. Some up years and some down years have resulted in slow overall gains.
Clients often tell me that they would love to take control of their IRA assets, but that they can’t tell their asset manager what they want them to buy and sell. And that is absolutly correct if you stay in a traditional IRA.
So what I am writing about today is another hidden gem called the Self-Directed IRA, or “SDIRA,” which could quite possibly open up a whole new world of investing to you. Now you can invest in real estate, notes, precious metal and so much more. This option has actually been around since 1974.
You’re probably wondering how a Self-Directed IRA works…
And you’re in luck because earlier this week, I sat down with Vantage IRAs‘ (and AZREIA member) Director of Business Development, Bobbielynn Berry, for a 15 minute discussion on the subject, as well as how you can get started today!
Be sure to watch the full interview above!
How can you get started?
Step 1: First you must open an account with an improved trustee/custodian.
From Wikipedia; “The trustee/custodian provides custody of the assets, processes all transactions, maintains other records pertaining to them, files required IRS reports, issues client statements, helps clients understand the rules and regulations pertaining to certain prohibited transactions, and performs other administrative duties on behalf of the self-directed IRA owner.”
Since a SDIRA opens a variety of investment options, understanding the rules and regulations are extremely important. Obviously, we recommend contacting Bobbielynn @ VantageIRAs.com.
Step 2: Once you have opened the account, you must fund the account by transferring the funds from your traditional IRA to your new account.
This process is easy to do, much like when you “rolled over” your initial investment from a previous 401K or from IRA to IRA. The trustee/custodian will be guide you through the process. Once your account is funded, now you can start looking at investments.
So you have your account set up, now what?
Here is another powerful, yet hidden, gem. You can leverage your IRA! I have written about the power of leveraging. If you want to get the previous articles please email me. Or feel free to sign up to receive our video series on “How To Get Wealthy in Real Estate the Smart Way.”
This type of leveraging is a little different than the typical loan that you would get for an investment property. When leveraging your SDIRA you must use a non-recourse lender.
The lender is underwriting the deal using your SDIRA and not your own individual credit worthiness. The required down payment is usually 35-40%, a little more than conventional investment requirements.
Interest rates are a little higher, from 6-9% depending on the lender’s programs. Also, there are discount points and other closing costs. But here is what you could expect from just the appreciation on an investment property;
Purchase Price $200,000
35% Down $ 70,000
*4.4% Appreciation $ 8,800
Return on Investment 12.60% ($8,800 divided by SDIRA $70,000)
This is a great ROI 12.60% considering at present, a traditional IRA’s returns are far below this rate. Again, this is the power of leveraging your asset, which you CANNOT do with a traditional IRA.
Finally, once you have your account set up and funded it’s time to find the right property!
And that’s where The Equity Finders Exclusive SmartMap Technology gives you an unfair advantage by locating the right property, with existing equity and good rents! Click here to learn more about our Smart Map Technology!
On behalf of The Equity Finders, we wish everyone Merry Christmas and a safe, prosperous New Year!
The Equity Finders
*This is National Association of Relator average appreciation for the 30 years.