SEAN MCKAY INTERVIEW – How to Use Your IRA to Invest in Real Estate & Other Alternative Investments

Welcome to the Next Level Income show. I'm Chris Larson.

And I'm Caleb Welborn.

And this is where we help you take your income and your investments to the next level. Today on our show we have Sean McKay, who is senior vice president of American IRA. He received his BA in economics from the University of South Florida. He's been investing in real estate for the last 15 years and during that time has built a portfolio of rental properties. He's also invested in tax certificates and notes, and he's also served on the board of directors for the Charlotte, I'm sorry, the Metrolina ria, which is a nonprofit real estate organization. He's also chaired the Charlotte Landlord Group. He enjoys using his education and experience to teach investors how to optimize their resources with tools such as their retirement account. And we're honored to have Sean on the show from Charlotte, North Carolina today. Sean, thanks for being on board.

Thanks a lot, Chris. Caleb, appreciate you guys having me.

Absolutely. So, Sean, you and I met, I think it's been more than five years ago now, and I reached out to American ira. My wife and I use our self directed IRA for some different investments. And this was probably even before I joined my partner Pete at Connell Capital Partners and started investing in multifamily, which you and I have talked a lot about. I liked American IRA because I was amazed that you guys are actually based here in Asheville, North Carolina. So, Sean, do you mind telling the audience a little bit about your history? I mean, you're a young guy. How'd you end up as the VP of American IRA at a young age?

Absolutely. So, oddly enough, I actually wanted to be like you, Chris, when I was, when I was getting out of college, as you said, I'd been fortunate, get involved with some rental properties, some pretty horrendous deals to start. Didn't quite grasp that whole net operating income concept that's kind of important for rental properties. But I wanted to just be out there and flipping houses and doing all of that. And what I realized pretty quickly was I didn't have the skill sets to actually survive doing that sort of work. So our principal at American Iraq, Jim Hits. I knew him as the real estate investor and as the entrepreneur. And I said, you know, I'd love to come up and spend some time originally from Florida. And he said, yep, that's great. You know, we'll, we'll kind of go through some of my deals, but I have this financial services company. It'd be a great idea. And, you know, at first I was I was kind of reluctant to get involved. I'm in my, at this point, my mid-20s and you know, I had this vision of getting out there and making a million bucks a year flipping houses and, you know, doing all the fun stuff you see on tv. Right. And shortly after that, I kind of hit that wall and I said, boy, a paycheck sounds amazing right now. And so I didn't have the wife and kids yet, just moved up there. And it's been a great 10 year period now. So I wish I could have hit the ground running. But in retrospect, I feel like I kind of have the best of both worlds where I get to add value to people's retirement accounts. And a lot of what we deal with is real estate. So that's kind of dovetailing with my passion and my interest. But then I get to do my investing on the side. So I like to tell people I'm kind of like the luckiest guy in the world. It's like I won a lotto and I just kind of get to live the passion on a daily basis.

That's awesome, man. Thanks for sharing that. And that was a tough time 10 years ago. I mean, we all took some bruises in the real estate market during that time. And I think what's really cool is the companies and the individuals that came out of the Great Recession. You got Facebook, you got Google. A lot of the companies and individuals, they're rock stars today or these mega companies. That's an interesting time and great story.

Yeah, absolutely.

And I think there's a lesson to be taken there from what you're talking about, about realizing what you were good at and then focusing on your strengths. And a lot of people, they want to be doing something kind of like you were saying, but then they're not self aware enough to realize, you know what, I'm actually really good at this other thing. So for anyone listening who may be going through a time like that, Sean realized what his strengths were, went with it, and now he's crushing it. So it's cool to see. So Sean, can you tell us a bit about the history of self directed IRAs and why it is that it seems not that many people know about them?

Yeah, absolutely. So when you look at the self directed IRAs, I think there's this misconception that we're talking about a totally different type of retirement account that if you currently have a traditional IRA with fill in the blank firm, that retirement account changes forms with us. And that's actually not true. Really when we're talking about self directed, you're just simply working with a, a financial services company that can handle outside assets, assets aside from stocks, bonds and mutual funds, what we call alternative assets. And so really what you're looking for is that firm that's essentially willing to handle the paperwork associated with it. So your retirement account is staying in its same form, the same rules and regulations apply to it, the same ability to make contributions and take distributions. All that kind of stuff is identical. And so what you see is that the vast majority of us are working with financial services companies that strictly deal with the securities, the stocks, the bonds and the mutual funds. And so we're unfamiliar with these concepts because our initial relationships are in these kind of product driven companies. And I'm the first one to say they're terrific resources for many people. They just want to plug some money with an advisor or somebody who's going to make the decisions for them. That really is the best fit. But for people like yourselves that are entrepreneurs that are out there creating concepts, this is really hugely valuable.

So, Sean, I want you to talk a little bit about how American IRA is different, but you touched on an interesting point there. What can people invest in in a self directed ira? Like, can you. Stocks, bonds. We started talking about real estate. What's the investment landscape look like?

Yeah, absolutely. So the interesting thing is the way the IRS code is written is it tells us what we cannot invest in. So it doesn't give us a list of things we can invest in. It doesn't say you can invest in stocks and mutual funds and rental properties, whatever it may be. It simply says you cannot invest in collectible or life insurance policies.

Okay.

So certainly that's kind of a limited list. So we'll see clients going through a wide spectrum, as you mentioned, Chris. Certainly clients can still invest in stocks, bonds and mutual funds with their self directed account. But really if you're going to be with a truly self directed firm, you're with a group like us because you are investing in real estate, for example. So you're either directly acquiring real estate, whether it's single family or multifamily, as certainly you're the expert on. There's the aspect of lending many times secured by real estate as well. So kind of being the bank for other people.

And then we also see that's how we started with our self. Yeah, so I'm familiar with that.

Absolutely. And we're also seeing a lot of precious metals such as gold and silver, physical ownership of that and investing in privately Held companies. So certainly we're all familiar with the Exxons of the world, the apples, those huge large public conglomerates. But there's also a lot of individuals that are starting a company in your own community. So maybe it's a restaurant, maybe it's an investment group that's buying multifamily properties. There's a lot of ways you can go with that.

So can I invest in my own restaurant?

Good question. So there's a bit of a debate.

That'S hypothetical, by the way. I don't have a restaurant.

Sure.

I don't want to get in that business. Not right now.

That's a tough business. Right.

Low margins there.

Yeah.

Great restaurants here in Nashville. But better left to those individuals than us, for sure.

Absolutely. And so really what you see is there's a concept where some firms will promote a robs model, a rollover as business startup, where they think it's appropriate and allowable for individuals to use their own retirement accounts to invest in a business such as a restaurant that they are actually employed in and draw a salary from. Our stance and our legal stance, our legal staff stance, I should say, is that that's not appropriate because of the prohibited transactions and how those things interact. So the short answer is if you're using your retirement account largely, you want to be using that for investments where you're not necessarily the principal that has a majority ownership in that type of business and that in many situations you're quite passive as it relates to that investment itself.

That's interesting. So what makes you guys different? Shawn, Aside from being in Asheville, North Carolina?

So to me, I think there's some obvious tangible elements and then there's some aspects of. I love this company. It's provided so much for me and I'm going to have a very biased opinion there. But as you look at the fees associated with our service, it's really kind of revolutionary in the self directed space. Most firms charge you more money each year as your account balance grows. So your annual fee components graduated as you go from 100 to 200, etc. Our stance has been because it's self directed and because, Chris, as you said, being a client, if you take the steps to double your account in a few years, congratulations, well done. I haven't had any sort of influence in that whatsoever in terms of adding value, as an advisor might, or something of that nature. So the way we've constructed it is a flat annual fee and we just simply have one break point. If it's under 7,500, it's 165 a year. If it's 7,500 and over, it's 285 a year. Which if our client has a 200, $300,000 account, that could be a 5, 6, $800 swing in terms of the annual fee.

I hear you there.

Yeah, that sounds like a great setup. My friend Rodrigo, a fanador with Asheville cash buyers, was talking about you guys to me a few weeks ago at dinner at his house. And he had only great things to say about you guys.

He's a great guy. He had the privilege of doing about 52 takes of me trying to do an intro video about six months ago. It was brutal. I can't talk about myself. I love the product, I'm passionate about that. But trying to get 30 seconds about me is horrendously awful for all involved. So he's a great guy, very patient man.

Well, you fool us today, man. You did great.

Thanks man. Appreciate it.

So with Canal Capital Partners, about 25% of our investors use their IRA. And why do you use your IRA to invest in real estate?

For me, I think the premise really with any of these self directed accounts is that the account holder should be first investing in something that they believe in, that they understand. And it's so important to invest in what you understand because we see so many people, they're in the stock market and they buy high and they sell low because they're not following these companies, they're not reading the annual reports, they're not putting that work in. And that belief part is that second concept. Because even when you have a friend who's maybe really competent in a certain type of investment, if you're not a believer, you're still going to get out. As we all know, when people are panicking, when there's the like we had in December, where the markets are kind of all over the place and there's some heavy drops. So I think that that level of understanding and belief go hand in hand. And for me, I've certainly spent my investing career trying to become a competent real estate investor with varying degrees of success there. But ultimately that's where I spend my time. And so I think that's where I should put my investment dollar. We have those that spend a lot of time learning about private equity and so they understand looking at tech companies, for example, maybe they work in the tech field. And so that is probably where they should be putting their investment dollars. So it's really all about connecting with your skill sets.

I think so that sounds like a real strength of the self directed IRA is that you can choose what you know about and put your money into it. That sounds fantastic.

Absolutely.

Yeah, it's. No, I think, you know, a lot of people, they don't realize that there are options out there, Sean. And I've been just finished a book and it talks about how do you diversify your risk. And I talked to like in the book that I wrote, I talk about how if you had real estate, you can diversify your risk, but it's not REITs, it has to be privately held real estate. You can do the same thing with other types of alternative investments, private lending, which is becoming big. And a lot of people say, well, I didn't know I could use my IRA for this. I was doing some research before the show and thinking like, okay, well how much money's out there? So a couple stats to share with the audience today. So the average. I'm going to quiz you, Sean, how much do you think the average retiree has in their IRA upon retirement? So say 65.

Yeah, so I've actually seen a wide range in the median values. But yeah, so we'll say somewhere around maybe 200,000.

Dude, you nailed it. Yeah, yeah, like 2, 250. 250,000. And then when you added it all up, this is the money that blew my mind. The total is 9.2 trillion in the United States in IRAs. So if you look at that amount in there, I don't know if you know this, what total is in self directed. I gotta imagine it's a very small amount of that. What are your thoughts?

Absolutely. So the last study on the self directed concept that I saw was probably about five years ago. And if memory serves, it was somewhere around 4 or 5% according to that study that I saw. That's certainly grown. I would imagine it's probably closer to 7 or 8%. As we've seen just a massive influx of marketing of firms providing the service over the last few years. So I think the awareness has certainly grown, at least in the investment specific.

Community around how many clients do you guys have with American IRA?

Yeah, so we're a little north of 4,000 currently.

Okay, awesome. I was trying to think where. The gentleman's from Charleston. He runs a hedge fund out of Charleston. They do some different form of lending. And I brought you up and he knows you. So from Charleston Capital. I don't know if you know those. Absolutely, yeah. So we were talking about you the other day, maybe your ears were burning, but Aside from so private lending, commercial real estate. Caleb was talking about residential real estate with our friend Rodrigo. What other types of investments, aside from precious gold, do you see the most in your clients?

I think certainly the private stock, the private equity where people are in varying ways investing in non publicly traded companies. So an example would be you're starting to see more startup banks, more community banks coming online. And so what they're doing is they're raising private stock. And so we've been fortunate enough to be the vendor for some of those groups. And so as they're kind of raising that capital, this is a great opportunity because certainly people tend to be a bit more patient and have a longer time horizon with their retirement dollars versus that personal money and checking and savings accounts.

Cool.

I didn't know that. So that's. Yeah. It's interesting. You look at the banking industry has changed a lot over the past decade since Dodd Frank and a lot of these products are coming out of that. So it's cool that you guys are able to help facilitate and fill that void.

Absolutely, yeah.

Sean. So a lot of our listeners are high income professionals like surgeons and lawyers, and they have somewhat of a fixed income that they can expect and are counting on. But then we also have entrepreneurs and business owners and sales professionals with more of a variable income. Is there a difference in strategy that these two groups should take when it comes to planning with their ira or. Yeah. What would you recommend for each of them?

It's a great question. So really as you're looking at the individual, I have to preface this by saying we're really kind of the low man on the totem pole as it pertains to clients with their financial planning. Certainly their attorneys and especially their CPAs are great resources as they're identifying the type of account. But I think certainly for the high income earners, I think a lot of times the small business plans that can also be self directed can be useful tools. And with many of those account types you can kind of turn the volume up and down depending upon what the income is in your business for that year. So certainly that's a major component for the real estate entrepreneur. If they're self employed and they do not have full time employees. There's a product called a solo 401k and there's a lot of benefits to that. But to me what is most pertinent to the conversation is A, certainly that high contribution limit, but B, for those like yourselves that are involved in real estate deals, if they use certain tools such as leverage they get mortgages for properties owned inside their retirement account. The Solo K has some benefits that IRAs unfortunately do not have. So certainly we're here to be a resource. But there are certain account types that are probably more appropriate for certain types of strategies and income levels.

Yeah, that's actually, you know, Sean, you're familiar a little bit with our account. So my wife's an architect and she has a solo 401k that we've moved over to you guys. And yeah, it's been great to supplement the 401k that I was able to roll over from my time when I was with Medtronic for more than a decade. So it's been powerful for us. And I would agree with what you just said there. But yeah, everybody should go out and like you say, we're not CPAs, we're not investment advisors. People can go out and talk to those individuals in their legal team and in their advisor team to find out what the proper structure is. So, Sean, I mean, you've given us a lot of information on that. If you could go back and give yourself some advice when you were 25 years old about 10 years ago, I'm guessing, what advice would you give yourself after riding some ups and downs over the past decade?

Yeah, so we'll keep it clean, first of all. Right. No, I'm just kidding. So I think really as you look at the last 10 years, as I kind of take stock of everything, I think certainly it's for me kind of a two parter. First is that was really when I started to in earnest, put in the work, put in the work to add as much value as I could with this firm and to try to work to be a more competent real estate investor. And so certainly putting in that work is crucial, as we know with anything. Right. And I think probably the second part to that would be to trust, to trust that work and trust that effort. Have conviction when you've put in that work that you can run with it, you can go quick when you have it locked in and just have faith that you don't have all the answers all the time. But when you think it's the time to make the move, make the move with your investing, whether that's scaling up or whatever the case is, may be, that's great.

I think one of the things on the show is we like to have guests on that have interesting stories and that talk about their path. And you hit on a big point, which is we talk about investments, we talk about how to diversify your portfolio and rates of returns and IRRs. And we firmly believe that the best investment you can make is in yourself and whether you work for a company or have your own business. Like you said, Sean, work hard, have conviction in what you're doing, passion for what you do, and that's going to be your best investment. It's going to allow you to reach the next level of income.

What was different about your mindset before that happened and what sort of flipped the switch to make you decide to go all in like that?

So I think certainly at 25, we've all had different experiences, different successes and different failures. And as I kind of alluded to earlier, I started really even out of high school with the acquisition of some rental properties. And because I didn't put in that work, I had poor results. And so I think that for me, even at 25, I was a bit snake bit really. I understood that people could be very successful and I wanted to be in my career as well as with real estate. But I was perhaps a bit more cautious than that typical 25 year old who's maybe just initially launching their investment and really kind of digging into their career. So I think because of that, as we started to see, you know, a couple years after that, there was obvious opportunities everywhere. It's as we all know, if you bought 10 properties during that time period, you wish you bought 50. If you bought 100, you wish you bought 500, right? So I think we all can look back and say, I wish I would have dug in a little bit more and I would have had more conviction to see scale up a little bit more than I did during that period.

I like it.

That's a good answer.

And if I could, guys, if I could just kind of throw something out there, you know, as Chris said, I've known him for a few years. Chris has been instrumental to me personally. I don't know if you remember this, but we met in the actual office years ago and because of my enthusiasm and my excitement, you were the real estate entrepreneur already, even though, as you said, you were that professional salesperson. And I'm just kind of spewing information as I'm probably still doing today. And I'm so excited to be talking to a guy that knows his stuff and I'm just kind of shooting all over the place and it was kind of a crazy conversation and you were so gracious at the end of it. The basic gist of what you said was if I could just give you some advice as someone who's been in Sales for a number of years. Really important as you're speaking with someone as a potential client to make sure you're understanding specifically what they need and what they want so that you can hone in and add as much value as efficiently as possible. Again, I'm kind of paraphrasing this.

That sounds what I said. I'm sure that sounded.

No, no, no. It was massively helpful and it was such a great way to understand that, yes, you can be enthusiastic and you can be passionate, but as we all know, this is about the client and this is about serving them and helping them to understand how the service may or may not be beneficial for them. So I've remembered that and I do greatly appreciate you being willing to share that with the young guy that was all over the place saying a bunch of crazy things. So thank you for that.

Thanks for sharing that too. And like you, Sean, I had people that offered me advice early on. And a lot of people make the joke about like a used car salesman or a salesman selling ice to an Eskimo, and that's simply not the case. I think sales is really about understanding your customer, your client. And if you have a product that fits their need or a service that fits their need, and if it does, it's easy, it should be easy. And it's really about, like you were saying, listening and trying to have a genuine understanding about what's best for them. And I was fortunate enough to spend a lot of years with ultimate clients or customers, I should say, that were really patients. They weren't the surgeons, they weren't the hospital, they were patients. And I had somebody tell me, if you do what's right for the patient, then your business is always going to be fine. And so I've tried to take that to our real estate business. And I've. I appreciate you saying that because I believed it then, I believe it even more now.

Absolutely.

And that story you said, that's 100% Chris. I mean, I was like, he's been instrumental in my growth as well and has given me tons of good advice, not only on sales, but just across life, really. So I'm sure he's helped a lot more people than he'll admit. But yeah, solid dude.

Glad to be on the show, you guys. Now I'm blushing here. You have to tell her on the video. So, Sean, we really appreciate you being on today, sharing a little bit about what a self directed IRA is. We did a webinar together. If people, most people that listen to the show know they can Access our book@nextlevelincome.com if people want to learn more about American Ira, what's the best place to get some of these webinars to find out about more about the company or to set up a call with you? What's the best way to get in touch with you, Sean?

Yeah, I appreciate that. So certainly the hub is the website american ira.com and so we do have the webinars. Chris, as you spoke about, we have that recording from that joint webinar we did. And that's certainly a place where you can find some in house webinars. If you're new to self direction and you just want to get a feel for it and you're more of that visual audio type of blend and you want to be able to go at your own pace without having to communicate with somebody from our company. It's certainly a passive way to do it. That's absolutely a great way to.

I know some engineers that don't want to talk to people.

That's right. That's right. My wife's an engineer by trade and well, I like to think that she doesn't want to talk to me because of the engineer part. I think sometimes she just kind of doesn't want to talk to me, period. But yeah, that's certainly helpful and we certainly, for those that want to reach out to me and obviously have a bit more of an interactive experience, the web. Excuse me, my email is Sean S E a n@americanira.com and certainly if Caleb and Chris you're willing to, we could put a link so that for those of you that want to sit down in person or have just a phone consultation, we can offer that. And really, as we've been saying today, our mission is just to bring awareness to the investment opportunities available to people. I've never sold accounts because ultimately the way that our fees are set up is we don't even charge the annual fee until you're making your investment. So there's no use in me trying to sell you a retirement account that you actually can't use and get value from. So hopefully you understand that a conversation with myself, with our sales team is really going to be trying to add value, educate you and make you aware of the pros and cons associated with it. So, so americanira.com email the Asheville headquarters. That office number is 866-7500 IRA which is 472.

Awesome. Thanks so much, Sean. We appreciate you being on the show and we'll throw all of that into the show notes for link to Chris's book, Next Level Income, as well as to the webinar he and Sean did and to all of Sean's information that he just said, if you didn't have time to write it down, you can find the link right there. So, Sean, thanks so much for your time today, and best wishes to you, and we're looking forward to talking to you again soon.

Gentlemen, thank you so much. You're looking snazzy today. You're really hitting the right notes. And I'm here looking like a gamer with the headset on and everything. So apologies. You guys look GQ as anything. So thank you so much for having me, and I really appreciate the opportunity.

Absolutely. Next time, we'll have you live and you can look GQ, too.

Yeah, sounds good.

All right, John, thanks very much.

Thanks, guys. Appreciate it.