Rentals, Lending, and Flips in your Self-Directed IRA

Welcome everyone to the Directed IRA Podcast. This is Matt Sorensen and I am here with the incredible Mark J. Kohler. We are excited to be talking to you about how you can use your IRA account to invest in a rental property, a flip, or maybe even doing some private lending with it. If you've not heard about it, it's called a self-directed IRA. Very popular topic, something we've each done ourselves.

Yeah. And if you're a regular listener, this is the show that you can share with that friend, your family member, business partner that you're like, I've been telling you about this. This is a show where we keep it simple. We're going to go through some examples, all the options that are out there, and then we'll dive a little deeper on a few of the steps and then rentals, flips, lending, kind of some of what it looks like so that way you guys can walk away with kind of a bird's eye view. But this is for our regular listeners. Please listen and share this. I think this is the one to share. Yeah.

And we're opening hundreds of new accounts every month, over 1,000 accounts back in December, new. So we've got a lot of new people. We want to make sure you know the rules of the rule and what is possible. All right, well, let's start with the first thing. I just want to get this off the table, which is I've done this. Mark's done this, but like, we are not just like, you know, cooking the food. We eat our own cooking on this. We love the concepts we talk about, whether it's a tax or legal strategy or retirement account strategy. We've generally done it ourselves. So I bought my first rental property with a self-directed retirement account in 2017. It was a 3-bedroom, 2-bath rental. When we say buying real estate with an IRA, we're not talking about buying a REIT or some publicly traded real estate company. I mean, like the rental property down the street, the duplex or something. So I bought this little 3-bedroom, 2-bath rental in Indianapolis. It rented— I bought it for $84,000. It rented for $950 a month. I sold it 5 years later for $184,000. So all that cash flow built up in my retirement account, no tax. That $100,000 gain back into my retirement account, no tax, no need to do a 1031 exchange. I bought that property because I thought it would be better investment. It would appreciate more in value than a mutual fund or target date fund I was doing before.

Well, I'll take that and raise you by 2. That is an awesome story. Matt had a few more zeros involved in his deal, but back in 2009, right after the real estate crash or in the aftermath of all that, if you were around back then, I bought my first rental property in my health savings account. And it was Chris Albin out in Chicago. Remember him? And I still own it. It was— it's the cutest little low-income housing meth lab. I mean, it's adorable. And I bought it for— I don't show the reps at a lot of events to show you. I did a 10% down on a $40,000 Section 8, little Again, low-income housing house, a 2-1, 2 beds, 1 bath, with a broken driveway, no carport. Anyway, it's out in Elgin, which has its good and bad areas, but I did it with 10% down. And back then you could fund a health savings account for around $4,000. And it's all I needed for the 10% down, seller carryback financing. I didn't have to sign on the loan. I still own it today and it cash flows about $200 a month. There was a couple of years where we had to use the resources that we had built up in the bank account for— I think there was some roofing that we had to repair and this and that, but it's paid for some medical for some of my kids, some dental work and this and that. But I still own it today. It's in my health savings account. It's probably worth about $10,000 more. And it's a tough area. But if you don't do that, you can do that in your health savings account. Or if, if not, you have a bank account at Wells Fargo earning you a quarter of a percent. So I've made more money in my health savings account on that rental property, which has paid for our healthcare.

Yeah. And so when we talk about buying real estate in your retirement account, we're talking about an investment. Like you're buying this because it's a good investment. So if you're someone that like knows and loves real estate and you believe in the future of that as an asset. And Mark and I, we talked to so many real estate investor groups, realtors, professionals in the real estate space, have some in our family, and it's like, well, what do you know? We are always talking about you should invest in what you know. Well, why are you buying a mutual fund if you're in the real estate space chasing deals all day? You should be investing your long-term wealth, your retirement account, in the assets you know and believe in. And this doesn't have to be a publicly traded company. It's these little assets that we've talked about here. We're going to give you more examples. So, yep, let's do two more.

I love it.

Let's keep going.

Yeah, two more examples, if I may.

Yes.

And then we'll give you some steps so you know, like, how hard this is. And I want to also make the caveat, you are not pulling this money out of your IRA. I am not pulling money out of my HSA. There's no penalty. There's no tax. I'm just going from Fidelity to Directed IRA saying, Hey, I want to go invest in this. Fidelity won't let me do it. Can you let me do it?

Yes.

And people have been doing this for 30, 40 years, the self-directed IRA industry. So, okay, another example. I like it when you talk about the wholesaling and which is kind of a form of flipping. You're buying land and then selling that land because it gets maybe zoned a different way. So I know you got a couple of sweet examples, but I'll do a lending example. Now, you've done more of this than me, but if you can, I'll steal your thunder a little. So recently my wife and I, I did a hard money loan and we took money out of our self-directed 401(k). See, we're using these examples because it could be an IRA, it could be an HSA, it could be a 401(k), but it was in my wife's solo 401(k) in her little S corp. And we did a hard money loan and it was a 12 and 2. Now what that means is when we loaned it to this builder, he was back east and we were in first position. They needed money to rehab the property. We got pictures of it. We did our due diligence. We got a first trustee. We loaned them X dollars. It was over 6 figures, but we loaned them this. We get 2 points right out of the gate. So if we loan them $100,000, we get $2,000 back on day 1, and then we get 12% per annum. So 1% a month, every month they hold that loan. Well, they held it about 9 months. And so we made 9% interest over 9 months. Plus the 2 points. So we made 11% in 9 months on that loan. It was secured by real estate. So it's a form of real estate investment. And we did it in the 401(k).

Yeah. Yeah. And I've done many, many loans out of my retirement account. That's mostly what I do because it's more passive for me. And so if you're someone in the real estate space or you've thought about using your IRA to invest in real estate, think about what's the right investment strategy for you. Also, you know, sometimes the strategies change on the times, you know, Private lending has been good because rates have been a little higher so you can charge more, you know, and flips have not been as popular because the market's been a little flat from an equity standpoint. When that shifts, you know, you might be like, well, I might want to be getting more on flips because the return is better. So a lot of dynamics there. But, but one thing I've seen too, which is, you know, we've seen the flip. I'll give a number of examples. I— that rental property that I bought, by the way.

Okay.

The very first one back in 2017. So I, when I bought that property, it was a turnkey rental. Someone else had already bought it, a client of mine with their solo K. Oh, they bought it for like $20,000.

Oh my God.

I don't know how much they put into it or no, they bought it for around $40,000. They bought it for around $40,000. And I don't know how much they put into it. I bought it for $85,000. But I bought it from their solo 401(k). So their, their retirement, their self-directed retirement account. And this can be SEP IRA, Roth IRA, HSA, traditional IRA, whatever. We mentioned some account types, but their account went in and said, I'm going to buy this property, pay people to fix it up. You can't go do the work yourself. We'll talk about in a second. And then I'm going to sell it for the profit. And that whole profit goes back into the retirement account. Now, I came in and said, hey, I want to just own it as a rental, buy and hold. And, and I didn't get the upside on the flip, but I bought it at a good time. The market went up over the time period I held it. It was a good cash flow. I frankly bought it because it was good cash flow. Now, another angle on this is, and we'll see this all the time at Directed IRA, I mean, you know, we're opening up 30, 40 accounts a day sometimes and they're all making an investment. Half of them are doing real estate. Well, we'll see this all the time. One person's IRA goes and buys the property, another person, another investor's IRA is lending on the property, fixing it up, and then someone else's IRA later buys it down the road as the buy-and-hold property.

And as long as they're arm's length individuals, it's not a problem.

Yeah.

Now, you can't have your own IRA loan to you or your wife or husband's IRA buy the property from you. But if these are arm's length individuals and you get into this this industry, or I should say kind of this community, it's super common and it's— there's no cooking the books. It's all fair deals. But people figure out that there's people, there's more money available in retirement accounts than people have in their back pockets. And so all of a sudden you start seeing all this movement. One of the other examples I just love too is the buying land and getting it zoned or knowing that there's a development going down the street and they buy land and then sit on it. Or it could even be a tax lien.

Like, let me give an example on that one.

Yeah. Okay. Yeah.

Okay. That's a good example. This takes a second, but it's pretty cool and powerful. This— I had a client who used a Roth IRA, and I remember him calling crème de la crème. Yeah, the crème de la crème. Because when that money— you make money in the Roth IRA, it's going to come out tax-free later in retirement. Now, this client, he said, he said, I want to get an option on a piece of land.

Oh, an option.

Yeah. I got an option on land. Now, this was a sophisticated real estate investor client. This was land up against a highway. Now, he knew that the county and the state were planning to put an exit right around where this land was, and they were going to connect to the roads and all such is happening. Kind of looks like outskirt development type stuff. And he knew that that land was going to go from just agricultural, low value to highway commercial. So he went and put an option on it. Now, that land was maybe worth like $300 grand. So he went and got an option on it for $400 grand. It was like $400, $400.

Farmer was giddy.

Yeah. So he told the farmer, he said, hey, I'm not going to buy the land from you. But I want the right to buy it from you within 5 years for $450,000. And the farmer's like, dude, it's worth $300,000 now. I know what this land goes for per acre. I'll buy more down the street. You know, it's like, so, but my client said, I'm going to give you $10,000 now for the rights to the option. And then I have this right for 5 years. And he recorded what's called a notice of option on title saying, hey, I have a claim for this property at a specific strike price. Well, 3 years later, this exit actually goes in, okay? And my client has the right to buy this at $450,000. Well, this property is now worth $1.5 million. So what he does is he doesn't go buy it at $450,000. He had the right to buy it at $450,000. He could exercise the option and force the purchase at $450,000. He sold the option to another developer that wanted to develop and build it out. Right now there's like a gas station and a Subway.

And I know the development. I love it. I love it.

So, and so what he did though was that million-dollar— he had a million-dollar gain. He put $10,000 down from his Roth IRA and a $1 million gain came back into it entirely tax-free.

Because he sold the option for, let's say, $1.5 million. And when he sold the option, he had to still pay the farmer his $450,000. And so the net result was $1 million of profit. And the investor-developer was excited, happy. The option owner was happy. Farmer wasn't probably too excited that, you know, he missed out on this opportunity, but he got his $450,000.

And he didn't know what was happening until all of a sudden there's a service station and a subway there. And he's like, I wonder. Yeah, they don't know.

Yeah.

But that's the good investing. You find opportunity, you see it, and you get to figure out ways to do value. And that's so hard to do in the stock market.

Yeah. Yeah. Now here's the takeaway, and then we're going to get into some steps here and then we'll get in. We'll unpack a little bit more detail because we don't want to just be— we love to give real helpful advice here, believe it or not. So I know some people do podcasts are like, you could do this. Well, when? Well, you got to buy a mastermind group in Vegas for $10,000. No, no. We're going to tell you everything we got. Our helpline, our law firm, the, the directed IRA team and the customer service is amazing. If you want to take action in this area, we've got the resources to help you. So the basic point I want to make here is that if you are in the real estate industry in any way, shape, or form, maybe you're into storage units, Maybe you're into strip malls, maybe you're into RV and—

I thought you said strip malls. I was wondering what you were calling them.

Strip malls. Okay. In Vegas. No. And if you're— but if you're into RV parks or whatever it is in the real estate industry, you have insider knowledge. That is not illegal to trade on that. You know something about real estate that someone else may not know. So you can use your retirement account to play in that game. You do not have to leave your retirement account in stocks, bonds, and mutual funds on Wall Street. All you have to do is move your account without penalty, without tax, fire that investment advisor that's not giving you that opportunity. Be careful what you hear when they go upside down on you and upset that you're pulling the money, and then get it into a position where you can invest in what you know. That's the concept. You can do it, people. And we've been helping to the tune of over $3 billion of client account value now here at Directed IRA of people that have brought their money and taken it elsewhere. We're not going to tell you what to do with it. Your money. Yeah, it's called self-directing for a reason. Not Mark and Matt directing. It's called self-directing. Yeah.

Yeah. I mean, and that's the cool thing about using a self-directed IRA. It's like the menu is all of a sudden open architecture. It's whatever you want that's allowed by law. Guys, the only thing you cannot buy with a IRA is life insurance, collectibles, and S corporation stock. Everything else is fair game. Now, we can't buy real estate and have personal use of that. I want to talk about that in a second. We need to buy it for investment purposes here. But like Mark said, the key here is really getting to a custodian of the IRA that lets you invest in the assets you know and believe in, whether it's real estate— that could be crypto, that could be private funds or precious metals. We don't care. We just want to talk about real estate because that has to be the most popular and one that's had, you know, made the most millionaires over the years is real estate. So, but that's, that's it. It's really the 3 steps. You open an account at Directed IRA, whether this is a traditional IRA, Roth IRA, SEP IRA, HSA. So, okay, wherever the account type works for you. Step 2, you fund it. Maybe that's your IRA at Schwab and you can—

an old 401(k).

This is your old employer 401(k). You don't even know what's invested in anymore. You can roll that over. This could be new contributions in, you know, and you'll have to get enough contributions in there to do a deal. But then step 3 is you're like, all right, go invest it there. Go do this deal. Go do that deal. And then your IRA owns it. This is the money you make on this isn't going to you. It's going to your IRA and building up the wealth in your IRA in a tax-advantaged way.

Now, there is a step in there between 2 and 3 where you may say, I want to— and this is— we have prior podcasts on this and all the support you need is to say, well, I want to pool different accounts together or I want more easy access and ability to transact. And that's where this LLC concept comes in. A special purpose LLC, sometimes called an IRA LLC, where you say instead of just calling up the directed IRA and say, go buy this real estate, go fund this LLC, and the law firm sets up an LLC for you funded by your retirement account or accounts, which is okay because you're kind of pooling the money together to work together. Family accounts can work together in that format. You fund the LLC, that's 2.5. And then number 3, you go buy the real estate or do whatever. But that methodology gives you a lot of flexibility and you go do it, go do it for 5 years, 10 years. All the money goes back to the LLC and then someday you wake up and go, you know what, close down the LLC and send all that money I made tax-free back to those retirement accounts. And then you go to that retirement account and go, oh, what kind of account is this? Oh, I can pull the money out for medical. I can pull it out for retirement. I can do a little. And then you just deal with the rules of that type of account. Once you get it back to the account, but that LLC is yours to build.

Yeah, yeah. Now we're two tax lawyers here, so you might be like, whoa, you just jumped a whole nother level there, guys. It is not that complicated. All right. We have thousands, tens of thousands of clients that have done this strategy in this structure.

It's—

I always tell clients, this is like learning a new board game. It's not rocket science. You just need to learn the steps and what to do. Once you've done it once or twice, it's the same thing over and over again. And so that's what our team serves. You can book a call with the team at Directed IRA, go to directedira.com. Book a call. It's right on the homepage. We'll walk you through this, what you're trying to do. Do you have retirement accounts, your money trying to work with? What account should you open? Can I do this type of real estate? We'll help educate you so you know what's possible. And if you're like, oh, I need that LLC or more structuring or advice, you can work with our law firm, KQS Lawyers too.

Yeah, I like the— either way you start, I'm going to, I'm going to throw out that some of you listening, you don't even know a lawyer that knows this stuff. Like, I want you to know we've been in this business for 25 years. We've got 14 incredible lawyers that take calls from clients all over the 50 states. Get on Zoom and we're going to talk about your situation. And it's attorney-client privilege. We have fiduciary duty to tell you what's best for you. We aren't selling you anything. And it's actually extremely affordable. For a couple grand, you can get a new entity set up for your retirement account, meet with a real attorney, and we could build a diagram for you and say, okay, here's all your options that are at your fingertips. And oh, by the way, how's your estate plan coming? Oh, how's your other tax planning coming? We're going to see things. And it's a really, really powerful consultation. And you can do that before or after you talk to a directed IRA. So just know that this, this synergy between our two companies is so, so powerful. And that's KKOSlawyers.com. You can make an appointment there. Okay, now let's talk about— we kind of went through the steps. Now it's Yeah, let's talk about rentals maybe, or no, did you want to go?

I just want to hit some rules.

Oh, rules.

Yeah, let me just hit some rules. Warm, warm, warm. So there is a rule though. There's a big rule called the prohibited transaction rule. Okay, I wrote a book on self-directed IRAs. It happens to be the number one book in the subject. I've got like 4 chapters.

He's trying to plug it. I'll go grab it off the wall.

It's got 4 chapters on just prohibited transactions. I'm not trying to plug it. I'm just saying.

It's okay. In acknowledgments, he mentions me. So.

Yeah, yeah.

Do you? I think you do.

Definitely, yeah.

Yeah. Go read it.

Go read it out loud.

You know, this looks really well written. I ought to read this sometimes. You're going to do it.

Go read the preface.

Acknowledge. Who do I thank first? In the first sentence? Oh my gosh. I would like to specifically thank my partner, Mark J. Kohler, CPA and attorney. Wow.

Mark introduced me to the subject of self-directed IRAs over 12 years ago and continues to be a leading expert in the field. As a successful author of books on taxes and asset protection, Mark also shared valuable insights that helped me navigate the book writing process.

Thank you. I knew that. I hadn't read that for a long time.

Give credit where credit's due. Thank you.

Is this— this is 14 years ago. And this book, that's 20 years ago now. This book's been out for 6 years. Yeah.

Third edition is coming out.

You guys would love this. It's a good book. Go get it on Amazon.

Yeah. Okay. Sorry, we got on a little tangent there. But what I wanted to say is there's some rules here. Here's the gist of it. When you're investing your IRA, you're trying to grow your IRA. Not personally make money because your IRA did something. All right. So, or personally benefit. So, for example, when we say your IRA buys a rental property, you're not staying at that property. Your kid's not staying at that property. You're trying to grow the IRA. You're trying to find the tenant that will pay the most money possible. When you sell that property, you're trying to find the person that will pay the most money to go in and grow.

Your kids will not do that. I will just forewarn you, your kids are not the right renter or buyer.

They want to deal, you know, So, and the Congress knew that. And so they're like, we're restricting you from using your IRA and transacting it with yourself or certain family members like your kids, your spouse, your parents. Those people are all restricted to your—

your brother-in-law is fine because we know. Yeah, because we know you're going to screw your brother-in-law over. So, you know, just have at it. Yeah.

Your sister even is okay. Brother, sister, siblings, aunts, uncles, cousins. Your IRA can't actually—

Suzanne, I would not do that to you. I just want to throw that out. Yeah, but there's a couple of brother-in-laws I would— Yeah, just to stay unmentioned here.

One other thing, let me just note, is a couple of things that could come up in real estate. Let's say you're doing the flip property. You can't work on the property. Okay? Your IRA can pay a contractor to go do the work or a handyman or whoever to fix up and repair, but you physically can't put on the tool belt and go work on the property. That causes another type of prohibited.

And you might go, well, what the hell? I'm in the flip business. That's where I really get that extra 10% return is because I'm, you know, elbow grease and I know all the angles and I don't have to pay for that contract. I know we get it, but book into the deal. Okay? You have to do the math here. What's my baseline? I'm going to take my IRA and go buy Tesla stock and sit around for who knows how long. And it could go up, could go down. I have no control over that. Not that Tesla stock is bad at all. Or I go do a flip and yeah, maybe pay a little 5 or 10% more for a contractor to go put the rain gutters on rather than me on a Saturday afternoon. Will I make a little less on that flip compared to me doing it myself? Yes. But will you make a lot more than sitting on a stupid stock on Wall Street? Yes. That's what you're comparing it against. So don't overthink it and say, well, I can't do the work, so it's a bad deal. No, no, no, no. Look at your ROI. Return on investment. That's what you're comparing it against. So be okay with that. In fact, this will all work for Matt because he does not want to put it on a tool belt. I mean, it's really— maybe at Halloween you could be Village People. I guess so.

I guess so. I'm more like the chief.

You're the Ute Indian.

Yeah, that's what it's for. Okay.

All right.

So, okay, let's hit one other last rule. I just want to know. Okay. And, and we're here to help. That's why I say we're here to help the team at Directed IRA. You can hire the lawyers if you need to as well, but we're here to help you along in the process. One other thing. Let's say you're a real estate agent buying a property and that the seller's offering a 3% buyer's agent commission. You cannot receive that. You might be, but Matt, I'm licensed. My IRA is not paying me. It's the seller of that property that's paying me. Yeah, but if your IRA is buying the property, that's like enabling this transaction and you're financially benefiting personally by getting paid. Has your IRA made an investment? And the IRS is like, that's a no-no. So you can be an agent, you can even represent your IRA buying the property, but you're going to waive the commission. Easy solution, just reduce the purchase price. Your IRA can benefit, you just can't benefit from your IRA making an investment.

Yeah, I love it. So if you're already pretty enticed, this sounds really enticing, your next step, now we're going to give a couple of other specifics here on examples on buying a rental, let's say. But this is the opportunity to say, you know what, I need to subscribe and like this podcast, get updates whenever they do a podcast because I need to learn more about this. Our first 10 podcasts on this topic go back in our history. We try to go through step 1, step 2, step 3 in depth. Yeah, we try to joke around, make it fun. But the point is a little bit of education on this is going to go such a long way and start booking your first appointment. Book an appointment with Directed IRA customer service or the law firm and say, I am going to take action and I'm going to start learning about this. And people, once you start doing that, the universe is going to bring you a deal and you're going to go, oh my gosh, here it is. And it's going to be freaking awesome.

Yeah. And we have webinars on this. We have a guide. We're going to put a link in the description to— we have a beginner's guide to investing in real estate with a self-directed IRA to help give you some tools and other resources. What we're trying to say here is We got you. We got a lot of resources. We've helped tens of thousands of clients do it. This might be a new concept to you, but for many people, this is something that's very interesting, empowering, and exciting. It gets you connected to your money and to this wealth that we're building. Guys, there's $45 trillion in U.S. retirement accounts. For so many of us, it is where the vast majority of our wealth is. But we want to be proactive about it. We want to be investing in it in the best way we can so we can grow it and have a retirement we're looking forward to.

Okay, so here we wanted to leave you with a couple examples of a specific asset type, and maybe we can go back to the examples we already shared a little. I'll go back to my little single-family home in the Chicago area suburbs. Is— let's do the steps. I had actually opened my health savings account at Wells Fargo. Right now, Wells Fargo is not opening up HSA accounts. They used to do it. They don't now. But back in the day, I had opened up my HSA and put my $4,000 in there. Then I realized with Matt, as we were launching, we hadn't even launched Directed IRA at that point. That's right. I had opened— went and opened up an HSA at one of our competitors. I won't say their names. They were the only ones that would open up an HSA. We were pioneers in this, people. We really were. We wanted to figure it out before our clients and So I opened up my HSA with this trust company, and then I moved the money from Wells Fargo to the trust company, and it was $4,000. I probably opened up the account, was like $300, whatever, $400, opened up the account, moved that. Now I could pay for the account fee personally. So I paid for the account fee personally, kept my whole $4,000 ready to go. Then I called my friend Chris Albin, give him a little shout out, awesome real estate investor in the Chicago area. And I said, hey, You're doing single-family homes out there. You got anything cool like a cheap deal, seller financing? I've got $4,000 down payment. I know it's small, but you're doing these. He had like a portfolio, if you remember, like $200,000.

A former schoolteacher turned real estate investor.

Yeah, it was awesome. He was just buying all these little. Yeah, turn and burns. So he said, yeah, yeah, I got this grandma. She owns this property. She's going to live with her kids. She'll sell it and carry the paper because it's mailbox money to her. And I'm like, okay, cool. So he put the deal together. I can show you the REPC at an event here sometime. And I bought it for approximately $30-something because I only had $4,000. So I had money for closing and all that. So I bought it for about $35,000. But before we went into closing, I opened my LLC. You can go to the Secretary of State. This is back when I was more of a— privacy was not as much of an issue. This is over 12, 13 years ago. I went and opened an LLC called Kohler Holdings LLC. I'm going to state a website. Of Illinois and you'll see it. And that LLC is 100% owned by my HSA. Open up a bank account back at Wells Fargo. Then I move the money back to Wells Fargo, to the LLC, which was from the self-directed HSA at a self-directed HSA custodian. Yep.

So they said, all right, this HSA is going to own 100% of Kohler Holdings. And to buy 100% of Kohler Holdings, it put in that $4,000. Which was in the Kohler Holdings LLC bank account at Wells Fargo. Just connecting the dots there.

Yep. No, no, I love it. I love it. I jumped over that spot a little quick, but it was funny because the money had made this route. It had gone from HSA account at Wells Fargo to the trust company. Then I opened up the LLC bank account owned by the HSA, and then the money came back to the Wells Fargo account, not in the HSA account at Wells Fargo, but the LLC bank account. Then Chris called me up and said, hey, closing's next week, whatever, send me a check or wire. And I'm like, all right. And I sent the money from Wells Fargo over to a title company in Illinois and took title to the property in the name of the LLC, signed a promissory note to this little lady. To this day, I'm still paying that note. And Chris is the property manager because remember, I can't own the tool, put on a tool belt and be the property manager. So I hired Chris at 10% of rent. And he's been the property manager ever since. I talked to him the other day. He's doing great. And so cash from the, the rent goes into the property management company. They pay certain bills or whatever, and then they send the money net back to the LLC bank account and it pools up. Sometimes I'll draw it out, and if I want that money, I've got to send it back to the HSA. Now, once we opened the Director— Directed IRA Trust Company, I told that other competitor, you're fired, and I moved the HSA account to directed IRA. So you can open up an HSA, a directed IRA right now, still fund it for last year if you had a high deductible account and insurance policy. And I don't know, am I missing any steps? But it still collects rent. Yeah.

And then that LLC, like you said, I think that's that last step is you don't take money from the LLC, you don't own the LLC. In Mark's example, the HSA did, or your self-directed IRA. So you'd send money from the LLC back to the IRA or HSA. And maybe, you know, once you're 59 and a half, you can start pulling the money out from your IRA tax-free. For the HSA, it can go against medical, you know, your kids' dental, orthodontist, you know, bills, other stuff that you were doing. But so my LLC, just since we're sharing our LLCs here, you know.

Yeah, yeah. You know, so you show me your LLC.

Yeah, yeah. So my account's at Directed, you know, and it set up an LLC or the Subtracted account on the LLC 100% called Legend, Legend, I-N-R-E LLC.

Okay.

Okay. Legend. It's not Kohler Holdings, you know?

Yeah, I don't want to be smarter. You're smarter.

Little unique. It was, I think my LLC, some of them are off of album names. So that's the Bob Marley album Legend is a good one.

Okay.

And I-N-R-E, Indiana Real Estate. I needed something unique anyways. So but that LLC Same, same process here. Money went from the IRA to the LLC. LLC has a bank account. It's a Titan Bank. Titan Bank's who we use now and coordinate with a lot of our IRA LLCs. And then it bought the property. The cash flow was going there. Rental income was going there. I had a property manager too. Now, you don't have to have a property manager. This was in Indiana. Mark's was in Illinois. Let's say I bought one in Arizona. I could kind of manage the property. I can't do the work, but I could go show it to a tenant, write a lease. Bug them if they don't pay, you know, and I can cut the bills for the checks and everything. I don't want to do that anyways, even if I was here. But I'm just saying you can do some of that self-management if you want. And then when I sold that property, the money went back in the LLC. And for the most part, I've done some other things. I've invested in some private—

I like your lending. I like your lending idea. So now the money's there. Yeah. How do you— do you do a lot of due diligence or what? So some of you may go, lend? How do you lend out of your LLC? Do you mind giving one example of that? Like someone says I'm a contractor.

Yeah. So for example, I lent money from my IRA LLC to a real estate investor named Natalie. Okay, then I got a YouTube video on this. Okay. I met her. I went to the property. We're going through the property now. Natalie was like this hairdresser contractor slash real estate.

Oh my gosh.

She owns the salon and everything. She's cool. And so But the house was like a— it was in such disrepair, a bank wouldn't lend on it.

Okay.

And so, but it was a good value. And in fact, the lot was a lot that could be split. Okay. And she and the sellers didn't know that or care to like go through that process. So there's an extra value there in just the land right next to it, not let alone the property she's going to rehab. So felt really good about the property that had the equity there, lent her the money. And I did the same, 12% interest and 2 points. That's what I always lend on typically.

And she went and bought it.

Yeah, she went and bought it. She rehabbed it and, and later sold it and paid me off. And so then when that money came back in, I had it lent back out in 2 weeks later. You know, that's the thing when they're lending, you want to get it right back out. And so what it takes is— what I'll say is at first it might seem hard. Well, I don't know anyone that wants to borrow money on a real estate deal. Go to your local real estate investor association. Association meeting and say, hey, I'm a new private lender looking for deals. You're going to have a lot of new friends.

I'd wear a bulletproof vest because you're going to be tackled in the hallway. I want to borrow money. I want to borrow money.

Use some discretion. Maybe not lend to someone doing their first deal that doesn't have any assets or anything to their name. You don't want to be careful about that. Use someone that has some experience. But also what I found is the, the people that I lend to, they're always doing the next deal and they want to keep rolling money. And so you kind of start working with people you have a good relationship with and So that's the private lending.

I like it. And we've got a great podcast on due diligence, like how do I loan the money and not lose it? What are the steps with the trust deed and confirming your first position and all that? So go back into our list of shows if you really want to go there. But the, the other thing that I want to point out that Matt kind of glossed over is 12 and 2. Now let's think about that. Matt said, as soon as I got that money back, I was out 2 weeks later with another loan because he's got 2 or 3 people that love to borrow from him. So they're always like, hey, are you available? You know, can I— because they're going doing deals. So if you're getting 12 and 2 and you do it twice in a year, so Matt loans someone money for 6 months and then another 6 months. So he's done 2 loans. And most borrowers that are doing rehabs, they don't want to have that money for more than 6 months.

It's costing them.

It's costing them. They want to— I mean, Matt's sending out some guy with a bat named Vinnie. So, I mean, they want to get that money back to Matt right away. So 12 and 2 means he's getting 14% on the first loan in the first 6 months. He got— he averaged 12 and 2. Remember, it's 6 months. So that's 6% interest, 1% per month, plus the 2 points. So he made 8% in that first 6 months. Then he turns around and does it again, gets another 2%. Now he's up to 10. He's got 6 more months of runway. So now He is averaging 16% a year. Guys, I'm sorry, is your mutual fund giving you 16% with a guaranteed first trustee? Oftentimes Matt's praying they default because if he defaults, he goes in and takes the property and sells it and gets to keep the profit too. So he's averaging 16% with complete guaranteed rate of return.

Yeah, I mean, guaranteed is a little strong there. You know, they could not pay you back.

Yeah, there could be some risk. Yeah, there's risk there. But you get the property.

You know, yeah, but it's secured. You know, there's— it's backed by an asset, not by some promise or an unsecured note. And so, yeah, and I think, you know, if you guys know the rule of 72, you take what's your annual rate of return, 16%, you divide it by 72, that tells you how long it takes for your money to double. 72 divided by 16 is like 4 years. When you're getting a 16% annual rate of return, your money is doubling every 4 years without putting any more money in. I ran the numbers. If I just lend $100 grand at 16%, in 18 years, that'll be $1.6 million making no new contributions, just getting— being consistent about that and getting the money invested and investing in an asset you know and believe in, in over time. So we went on a little—

moral of the story, bring us home, baby.

Moral of the story is the world is your oyster. Don't believe in Wall Street trying to sell you the things for your retirement account that's on the menu that they happen to have. You can invest in stocks, bonds, or mutual funds. You can buy annuities. I'm not saying that's not bad. I'm just saying If you want to invest in real estate because you know it and believe it, you can do it with your IRA or 401(k). We do it for clients every day here at Directed IRA. Give us a call if we can be of assistance to you. We've got a ton of resources. We've been dropping them through the show, so please reach out to those resources and grab those if you can. We will see you next time. Until then, stay calm, self-directed on.