How To Invest In Real Estate With A Self-Directed IRA

 

In this episode, the Not Your Average Investor Show talks with Jason DeBono of NuView Trust. If you want to learn how to invest in real estate with a Self-Directed IRA, you’re in the right place. As a third-party vendor that helps investors use their IRAs and 401(k)s to invest in real estate, Jason shares valuable information about investing in real estate with your retirement plan.

The average American does not know there are means to acquire cash-flowing rental properties within your IRA or 401(k) instead of just having to settle for stocks, bonds, or index funds. For those investing in real estate who DO know about Self-Directed IRAs (SDIRAs), they frequently have questions about how to invest in real estate with a Self-Directed IRA!

That’s why we are grateful to have Jason DeBono, the President of NuView Trust, explain the ins and outs of using your retirement funds to invest in real estate, the best asset class for wealth creation.

But here’s a friendly warning! This interview is loaded with highly detailed financial explanations about working with Self-Directed IRAs. Several JWB community members commented in the chat that they would need to re-listen to what Jason said to fully process all of his golden nuggets. 

We highly recommend you listen to the full interview with Jason DeBono a couple of times about how to invest in real estate with SDIRAs a couple of times so it will sink in. Immersing yourself in this content is a smart strategy as you progressively learn about real estate investing

Is Self-Directed IRA Investing Going Crazy With Rental Property Investments? 

Yes, it’s crazy. People are coming to us with ideas about investing in real estate and other esoteric things, and we’re very busy. Many are setting up accounts to buy real estate, and they can’t find properties because the market is so crazy, and they’re getting outbid. They are either getting outpriced or outbid for the properties they want to invest in.

Many folks are wondering what it means to be able to buy a property in your retirement account. Let’s explain the nuts and bolts around how Jason’s company helps investors do that. NuView Trust helps people know this is possible.

Self-Directed IRAs are not a new concept. It’s been permissible since IRAs have been created. The thing is finding a custodian who will hold it. The larger companies want to deal with electronic money exchange. The buying of real estate is different, and that’s why Schwab and other brokerages don’t handle these self-directed IRAS that invest in real estate.

It’s a more manual process and requires you to find your investments. NuView Trust is passive, and the organization will perform what you direct. The act of buying your investment and doing your due diligence is up to you and what you do with JWB.

What does NuView Trust do, and how do they fit in the scope of retirement plans?

Based in Jacksonville, NuView Trust Company was established in 2003. They are a leading, regulated IRA custodian for alternative investment options, primarily held in long-term retirement savings accounts. 

What makes NuView Trust unique is its focus on real estate investors and participating in the real estate market, which most other firms shy away from. While other custodians tend to reject non-traditional investments, NuView’s administrative platform was designed with alternatives in mind. With a self-directed IRA, the client serves as the account fiduciary, and as such, NuView Trust does not render tax, legal, accounting, investment, or other professional advice.

What Does A Client Who’s Had Money In The Stock Market Want To Learn How To Invest In Real Estate With A Self-directed IRA? What’s In Their Head?

Clients come to Jason for a variety of reasons. The first group knows and understands it, and they know real estate better than the stock market.

Jason has never been a stock market guy. Stocks are hard to understand what makes them go up and down, which means it feels like gambling in Vegas. It’s a game of chance, and that’s how stocks feel to Jason. It also feels like you only gain a slight edge.

When investing in real estate, he feels like he has a huge advantage. The main reason people come to him upfront is that they want to duplicate their efforts in real estate. If Jason looks at all the wins he has in real estate, that’s where he wants to put his money.

Can Money From A Current 401(K) Job Be Moved To SDIRA? Or, Is It Only After You Switch Jobs When You Can Move The Old 401(k) to SDIRA?

Not likely. Most jobs have a group plan for their 401(k), and you have no control. You need to sever your relationship with your employer most of the time before taking your 401(k) money and over to a self-directed IRA.

Can you co-own a rental property with your 401(k), and if so, can you get a traditional mortgage for your portion vs. a non-recourse (ex. You pay 50% Cash from 401(k) and 50% personal mortgage)? As a co-owner, are you still excluded from using the property?

This is an advanced question, and Jason applauded the person who asked it because they’ve been doing their homework! 

To simplify, the IRS says that as long as you keep everything split, it’s permissible. However, if you have a $200K house and use $100 from an IRA, you put $20K down of your own money and take an $80K loan. The problem starts getting into the details of IRA rules. 

In theory, yes, it’ll work. But for the most part, you would have a tough time doing it. Jason says he’s never said it’s worked before. Non-recourse financing is the only way to make it work and not using your property as collateral. You can work with multiple retirement accounts, but you cannot do the traditionally financed option.

If you can take advantage of putting money away for multiple family members, like your wife and kids, it’s a simple way to create a financial legacy. Have the kids and wife work for you, and that’s when you can establish their IRAs. The investment you make now will compound their returns later.

Do You Offer A Checkbook SDIRA?

Checkbook IRAs are available, but you need to create the LLC structure on your own. You would need to work with your attorney and set that up. We cannot set it up for you, but yes, you can do it. However, you can make mistakes, so beware.

What Is A Checkbook Self-Directed IRA?

It’s an avenue of investing where the IRA holds and owns the investments. No LLC, no entity, and no checkbook control. That’s the standard SDIRA.

With Checkbook control, we’ll insert an entity between the two parties — the LLC and the IRA — so they can buy the real estate and write the checks themselves. However, you have to use caution because there are strict rules, and you don’t want to stub your toe with the IRS. As long as you know the rules and follow the guidelines, you can do it.

What Are The Tax Consequences Of An SDIRA?

If you want to make money, don’t be scared to pay taxes. How do you mitigate the risk of getting taxed too high? You either pay when you put the money in or when you take it out. If you buy a house under an SDIRA, you can buy or sell the house without tax.

But here’s an example: UVFI / UVIT. UVIT allows you to buy a $200K property you buy with your IRA. If you pay cash, you own it free and clear, and you don’t have to worry about UVIT. If you sell the property at $400K, you just made $200K profit tax-free.

On the other hand, if you take a loan with a non-recourse IRA, you have to make a mortgage payment, and you’re breaking even. At the end of 2 years, you sell it for $400K. You get $200K of profit, but of that $200K, 50% of the profit goes back to the IRA tax-free, but the other piece that you borrowed money on, you’ll pay $37K (or 37%) in taxes. The total proceeds going back to your IRA is $163K after tax.

Is that tax scary? Well, you made over 100% profit on what’s being taxed, and that’s still okay. 

Why Is Investing In Real Estate With A Self-directed IRA So Powerful?

Let’s take Jason’s example further. What if Jason takes the same money and bought two houses for $200K with the $400K? Now, he has an account that has $550K made off of his initial $200K investment, plus he’s diversified!

His average gain is still high, and he’s in a good place with his investments. Don’t always take on leverage, but leverage in an IRA is brilliant because the purchasing power offsets the taxes. Taxes aren’t scary! 

But What About The Taxes Linked To Self-Directed IRAs?

Jason relayed a story about a time he spoke at a conference to real estate investors. He asked the crowd, “How many people like to make money?” Jason explained that everyone raises their hand! Next, he asked, “How many people like to pay taxes?” No one raised their hand. Then, Jason said to the crowd, “But you can’t make money without paying taxes.”

When people hear about taxes, it dissuades them from wanting to do the SDIRAs. Why would people buy properties in a retirement account if they can’t have a tax write-off through depreciation? When you are doing an SDIRA, you’re already getting the tax savings!

It’s wise to buy properties in your retirement account because of the advantages of being tax-deferred or tax-free. The UVIT tax is from the amount you borrowed, so it’s nothing to be scared of. 

If you’d like to get more information about a Self-Directed IRA, JWB can set you up to start a conversation. 

Why Are Real Estate Loans Different Within An SDIRA?

Loans within an SDIRA are different because of all the rules, but the mortgage companies JWB works with understand the SDIRAs, and they’ve catered their products and services to fit JWB’s inventory via non-recourse loans.

The bank is saying, “I’ll give you the money, and the only thing I can do is take the property back if you stop paying.” We don’t like to pay 50% down from a down payment standpoint, but we have the money to put down in an IRA. So, putting 50% down on a property via an IRA isn’t as scary.

Can You Use Leverage In A Self-Directed IRA? 

Yes! Figure out how you can qualify for a solo IRA program. You have to follow some rules, but if you buy real estate with a 401(k) plan, you are not subject to VAT tax!! NuView can help you understand how to do that. Most people don’t take the time to understand it, so discuss it with us, and we’ll explain it.

Any Chance We Can Have A Worksheet With The Non-recourse Numbers Plugged In?

Yes! On a future Thursday, Gregg can go through an example during the property of the Week show. But when meeting with our clients, JWB employs a planning component to view YOUR numbers and YOUR retirement account because no investor is the same. If you want to learn more about SDIRAs, ChatwithJWB.com is a great way to start the conversation. 

If You Can Make Money Off A Self-Directed IRA Tax-free, Would You?

Gregg paid taxes on some of his traditional IRA to invest it into his ROTH IRA today because he’s expecting higher returns in his ROTH IRA over the long term. He’s in a higher tax bracket now, and the main reason is he’s confident he can make significant growth that’ll be unhindered by taxes.

How much does it cost to create/maintain a Self-Directed IRA, and what are the fees associated with depositing monthly rent checks and withdrawing expense payments? 

There are fees, but they are pretty affordable. There are similar fees with other groups, but their customer service is outstanding. Gregg Cohen of JWB highly recommends NuView Trust, who he has worked with on his own retirement fund assets for 15 years!

How Does Inflation Affect Investing In SDIRAs?

The idea of inflation is scary. Spend time researching credible sources when you study inflation and how it will affect your future. 

When it comes to inflation, every employer is feeling it. When you have inflation and supply chain issues, it’s not good. If this isn’t handled soon, it’ll possibly cost you more if it takes $20 per hour to pay for the employee to make your cup of coffee. 

Hard assets are where your money belongs when you see lots of inflation. Building a new house can result in negative equity right now! The appreciation, however, offsets the inflation. 

In specific markets, you can be upside down with a new home. If you already own an older home, the value of your home increases and inflation helps your asset have a higher value. If you believe that inflation is here and will worsen, you want hard assets every day!

Hard assets go up in value, and so do rent prices and home prices. That’s why real estate is a hedge against inflation. Rents go up. You don’t get the same with paper assets. 

You’ll want to get into hard assets in your retirement accounts via an SDIRA. Your regular stock market brokerages won’t invest in hard assets with fixed debt costs because that’s not part of their business model.

When you take out debt, that stays fixed, and as the inflation goes up, it gets easier for you to pay off that debt because your dollars are worth more.

How can our Not Your Average Investor community get more information about Self-Directed IRAs?

Jason invited the listeners to visit www.NuViewTrust.com to download a free guide on changing your investment future with Self-Directed IRAs. Or, you can email him directly at jason@nuviewtrust.com. Once you have decided you want to sign up for an SDIRA, the JWB team will be happy to help you find an ideal rental property that you can add to your portfolio. 

You can also go to www.jwbinventory.com to see what properties are currently available. We encourage you to contact the JWB team for a consultation to determine how our turnkey rental properties can deliver positive passive income cash flow. 

When you are ready to take the next step with Jacksonville real estate, visit www.chatwithjwb.com. We will walk you through the numbers to show you what your potential Return On Investment will be.

We hope you enjoyed learning about investing in real estate via Self-Directed IRAs. As we stated before, there is a lot of deep financial education in this interview with Jason DeBono. We highly recommend you re-listen to this podcast a few times if you truly want to learn how to invest in real estate through Self-Directed IRAs.

To Your Success,

Gregg Cohen

By Gregg Cohen

I am a co-founder at JWB Real Estate Capital, and I love to talk about investing in rental properties! You’ll often find me here contributing to our blog and in our Facebook group connecting with the community & sharing insights.

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