8: Wealthbuilding Tip - How to Invest in RE Using Retirement Accounts

Welcome to the Purpose Driven Real Estate podcast. This is where passion meets purpose in an ever changing real estate market. I'm your host, Steve Valentine, former real estate agent turned real estate entrepreneur, speaker and guide to all things real estate. And this is my co host, Paige Tons, former D1 college athlete turned real estate adultrepreneur. Whether you work in the industry or you are a consumer of real estate, with each episode we intend to raise the bar in our industry and show you the purpose behind every piece of real estate in your life. What's up? What's up? Paige, we're back. What are we talking about today? This is Steve Valentine, your host of the Purpose Driven Real Estate podcast.

You already told him that in the intro.

Shut up.

Our wealth building tip today is how to invest in real estate using your retirement accounts.

What? You can do that?

Totally.

Did you know that?

Well, I didn't know it like two years ago.

Okay, question is.

But I know now.

Does anybody else know that?

Not really, no.

Okay.

Few people.

So there's this cool little tool for investment called the self directed 401k IRA. There's a company here locally in Phoenix that we use called Vantage.

Okay, so what the heck is that?

What the heck is what?

A self directed 401k retirement account.

Advantage. Getting there. Stop asking dumb questions.

That is not a dumb question. Most people don't know what that is.

Most people don't know that you can actually keep your Benefits of your 401k and roll it into what's called a self directed. Now, self directed is exactly what it stands for. It means that you get to direct it to the investment of your choice. And there's a number of things that you can do with it. So to give you a good example, if you have, let's say, $200,000 in your 401k and I always find it funny, Paige. Or meetings or blueprinting somebody's wealth building program where you ask them what their rate of return on their IRA or their 401k is and they have no idea. Oh yeah, after their fees.

I was wondering where you were gonna go with that.

Well, a lot of people just don't know. It's just keeps coming out of their paycheck and they really don't know.

They're just like, they're on cruise control there. They're doing their life and that's just another thing to worry about that they don't need, they don't feel is necessary, but really it is.

And so a lot of times there might be Fees, depending on the company they haven't invested with, whatnot. And so you really don't know after you reduce those fees what your actual rate of return is on your money. In a self directed ira, you can actually purchase real estate inside your retirement account so you can buy a rental property. And the big deal with it is as far as making sure that you don't get in trouble, you know, is making sure that any rental income that comes from that property goes back into your self directed ira.

Right. So you're buying a rental property out of your retirement account using the self.

Directed correct cash, so you can keep it in there as long as you want. You can use the contributing money into the IRA for repairs, things like that, when it needs it, as it comes. 2. You can also do another type of investment which we do a lot with our investors, is called deed of trust investing. Deed of trust investing out of your 401k sometimes will give a better rate of return than what your typical is and it's guaranteed. It's one of the many benefits that we've made for our clients when they've invested us is that they're getting a guaranteed rate of return that's secured by a piece of property. Right. So their risk is very low.

How is it secured by a piece of property?

So there's two different instruments to this. There's a note which is the actual term. So it's the interest rate, it's the length of time, it's the amount and the date it's started and the date that it ends. And then it's secured by a deed of trust. So that deed of trust, if anybody ever default and not make the payments, that deed of trust allows that investor to foreclose on the property. Payments are not being made based on.

The agreement like your typical loan, kind of, yeah.

Their first position, they're in a first or second position. You know, we have a lot of people that do second position money.

And the second position, that's an unsecured note.

Well, second position typically is secured, it's just secured as a second mortgage.

Right. But with Vantage, how does that work with the unsecured versus the secured?

So the security is the property, so it depends on the investor. Some of them will do an unsecured note, which is basically just a loan, you know, personally to a company, to whatever has to be an arm's length transaction. So you can't just go loan your money to your brother when it comes down to that. So there's a lot of different rules and that's why we have people go in and actually sit down with vantage and go through the process. And then, then there's a lot of different things you can do with your 401k or your IRA or whatever it is you want to roll over.

Mm. So what are the different retirement accounts that you can roll over into a self directed.

You know, if I remember correctly, you can do the 401k.

I know you're not the total expert.

Yeah, I'm not the total expert. We'll have to have him come on and talk to us about it further. 401k IRA, that would be Roth or the simple. I think those are the ones that you can do. I think there might be a few other ones, but those are the main ones that you can do.

Okay. And so what are the options to invest with Valentine Group using self directed?

So self directed.

We kind of touched base on it, but I wanted to kind of line it out.

Yeah. So we like to. Again, it goes back to blueprinting, wealth building. You know, we blueprint what they want to accomplish and what amount of time they want to do it in. And then we sit down and we show them what we have to offer as far as investment opportunities. So somebody could take their IRA and maybe they. They've done really well and they're maybe of a younger age and they want to own real estate inside their ira. So we could take that cash or whatnot and sell them a home inside their ira, get it rented. Now it's producing income, those types of pieces. But then you have some people where they don't really want to own rental properties. They'd rather have that guaranteed rate of return. Right, Right. So the two different.

Kind of like that mailbo, right.

It's mailbox money. So the deed of trust investing is guaranteed rate of return. So it depends on what position it's in, what loan amount is. So their interest rates vary between 6 and 9% that we guarantee. And what happens is you have a. You have a choice. Then the difference between the deed of trust is the deed of trust is guaranteed rate of return. Right. If you are buying a house, the only thing that you lose out on by having the house or doing deed of trust versus the house is that the house has the potential to appreciate. But we really don't like to sell appreciation. When it comes down to investing, we're really looking at cash on cash return and what the cap rates are. So right now I'll give you a good example, and we can definitely go into this further in a wealth building appointment is that a lot of people look at rental properties and you have to go off a cap rate. Okay, So a cap rate is basically what the rate of return on your money, your cash out is. So if you buy a $200,000 house with rental and it's cash, you're typically going to have about a 30 to 35% annual expense out of the rent. So if the rent's $10,000 a year, you're going to have about $3,000 in costs going out. Taxes, insurance, those types of things. Then you divide that income by the investment and you get a cap rate. Well, right now with where the prices are, when you pay cash for a house, you'll be lucky if you get a cap rate of 5 to 6%. So that's a 5 to 6% cash on cash return. The only thing that's not factored in there is any future appreciation right now. Deed of trust. If you're really looking to just grow your retirement, that's a, you know, if you did a first position note with us for $200,000, you'd have an 8% guaranteed rate of return. So a little different from the 5 to 6. And the 5 to 6 could be risky if an AC unit goes out. Those types of things, you're a lot of unknowns. There's a lot of variables, a lot of unknowns. So that's why there's a difference in, you know, we talk to people about investing in real estate out of their IRAs. We do try to get them to look at the guaranteed rate of return rather than the rental option.

Okay, so in order to wrap up our little tip today.

Yep.

If our listeners are looking for more information and more detailed information, especially with vantage, where can they go to get more information and how can they set up a wealth building appointment?

Well, they go to valentinegroupaz.com they can go in there and click on the wealth building investor tab. Yeah, the investor tab. And go through that process.

We call our investors wealth Builders just.

To let everybody know you're right. So you can go into the wealth building tab. You can go in there and subscribe and then you can also contact us through there with more information on the 401k IRA and the self directed version of that.

Cool.

Sweet. Thank you guys for listening. We do appreciate it. We hope that you're sharing it and subscribing to it and we'd love to have a five star review. And of course, if there's any real estate related items that we can help you with. Please reach out to us either through social or through our website. Awesome. Bye.