How to Invest in Apartments Using Self Directed IRA and Solo 401K

Through some of this stuff, guys. Yeah. So as I'm kind of going through it, feel free to stop me and ask me questions. Keep this an open ended conversation. I'll go through the first part really quick and then I'll slow it down during the end. There is some new bills proposed in Congress to give you a little bit more about. My background is I got to actually speak with Ron Wyden and Elizabeth Warren staff just last week about the new bills and proposals. I do work on a team of Congress individuals where we get to review bills and things. So you can ask me virtually anything and I'm going to be brutally honest with you. So just let me know what questions you have and I'm here to help you out. So with that being said, I'm just going to kind of dive right on into the conversation today. And it really is about using your retirement account to invest into real estate. Now one of the things that happens is when we use a retirement account to invest in real estate, there's a lot of problems and a lot of ways to get around these problems because some people have this bad notion in them and, and usually the bad notion comes from just not understanding how to either use a self directed IRA or a solo 401k. So we're going to kind of talk about those a little bit. We're talking about things like taxation, how to avoid taxes on any investments that you're doing in real estate wise, especially the passive ones like syndications or notes. And then lastly, you know, we'll talk about some of the bills that have been proposed. Quick disclaimer. I'm only here for your guys's informational purposes, right? I can't give you any investment advice. I can't give you structuring advice, tell you if it deals good or bad, which most of the time that's not what people need. Most of the time people just need someone to guide them through. They'll make their own decision, which I can help with. So like I said, I'm going to go through really, really quick basics, aspect of self directed accounts, why it's important to you as investors and then real life issues and finally how we can move forward with the day and get started with certain aspects. So I'm sorry to be talking so quick but I got a small window and a lot of info to go over. Once again, put your questions in the chat box or just talk over me. I promise I'll stop and you're not going to interrupt me. So the first thing is what is a Self directed ira. Well guys, it's made up. Anytime you hear something about a self directed IRA of some sort of. These are all accounts that are 100% made up. And what it comes down to is the custodian that holds your retirement account. So if I have an IRA, a 401k, a 403b, a TSP, a TRS, it's probably held at what I call a public company. These public companies are companies that allow you to invest in public assets. Stocks, bonds, CDs and mutual funds. Annuities like Fidelity, Charles Schwab, Vanguard, Merrill Lynch. So when I set up a self directed account there, those are what they allow me to self directed in. I get to choose my own stock. I get to choose my own mutual fund instead of someone choosing it for me. When you work with a company like Quest, we're on the other side of the fence. We let you invest in what we call private assets, not public. Private assets is, and everyone on here is real estate related Rental properties, fix and flips notes, syndications like multifamily storage units, senior living projects. Doesn't have to be though. Other private assets could be cryptocurrency, gold and silver. A small business. Notice that there's not one of these that is really better than the other. They're just different. If I have an IRA at Fidelity, I can. I'm going to use that to buy stocks. If I have an IRA at Quest, I use that to buy property. Most of our clients want good diversification will switch across both types of accounts. Which literally leads to the first benefit of having one, right? If I think I have my 401k or my IRA and I feel like it's diversified, what's the first fox? I haven't all these Fortune 500 stocks. What happens when the market crashes? Right? We see the market change down and go up and down and up every single day. When this happens, and I'm going to argue you don't have good, diverse, any type of diversification in your portfolio. Let's take a portion of that and move it to what I call the private sector where we can invest in something tangible. Somebody can go touch something, I can go feel something, I can go look at and see. I can watch it be built. Right. The biggest reason though, and the real reason we're all on here is to avoid taxes. And I like to describe it from a fix and flip standpoint because it seems to make the most sense. Everyone out there, if you do a fix and flip and you earn $10,000 from this fix and flip, you don't really get to keep ten grand, do you? The IRS steps in and when they do, they pull out a little portion of that profit as as taxation, could be earnings, could be capital gains, could be some sort of income tax. But did you know you could do that exact same investment whether it was a fix and flip? Holding a rental property, doing a syndication and all the profits can come back completely tax free today and insert accounts tax free forever, right? So it's a way to really capitalize on more money because I don't have to pay taxes. So I love these just from that standpoint. Lastly, something that I like to label is invest in what you know best. If you understand the stock market and how to make money in the stock market, then you're in the wrong meeting. Use your IRA, use your 401k and be investing in those stocks. But if you're here to learn about real estate, right, and learn how to invest in something different, then let's take your retirement account and invest in that area. Because now you're learning how to invest in something you can feel now you're learning how to invest in something where you can get real advice from. And that's why I kind of like and I label it as invest in what you know best. It's kind of cheesy, you know, you don't be able to Google it and find it anywhere. I just, that's what I kind of like to think about it. Now there's all types of plans that could be self directed things like a traditional Roth ira. These are the two most popular under the personal plans, mainly because a lot of us have 401ks, trs, tsps, 403bs. All of these accounts will turn into a traditional IRA. Now we have the Roth IRA as well. Roth IRAs are the ones that grow tax free. If you're a younger individual, this is probably the account you're more interested in. If you're an older individual, you definitely want a Roth. But you're going to have to pay some taxes. And you can always schedule a consultation with me. We can see what that would look like. We got employer plan step, simples, solo. 401k is one of the most powerful accounts out there. And then even specialty plans like a health savings account or an education account for a child. So any one of these plans can be self directed. Okay. Now I always say that all of these plans are what I call tax advantaged plans. Anytime you do an investment, all of your earnings avoid taxes. That's a pretty powerful statement, right? Knowing that I can do a syndication, I can do a fix and flip. I can hold a rental property and I don't have to report any of it as income and I don't have to pay any taxes. Well, if the IRS is going to give us the ability and give us an entity that can go ahead and go through these motions and avoid taxes, they're going to put some big restrictions in there. People restrictions, transaction restrictions and investment restrictions. Really, the only one that people on this call care about are going to be people restrictions. And there's people the IRS says is actually disqualified from receiving a benefit from your ira. I can't invest into certain people, the first person being me. I can't use my IRA and lend me money. Doesn't work that way. Why would you ever pay it back? I can't use my ira, buy a house, go live in it, and say, oh, well, it's an investment property. It's not an investment. That's a homestead. Right. But it's not just you the IRS says is disqualified. It's this unique little list I just made. Don't let this scare you. It's not as bad as it looks. But this unique little list breaks down to you, your spouse, parents, kids and their spouses. I can't use my retirement account and buy a house for my parents to go live in. Doesn't work. I can't use my retirement account and lend money to my kids so they can start their own business. These are what we call disqualified people. Well, what if I set up an llc? Now, unfortunately, guys, the IRS isn't that dumb. I work with those guys all the time. Right? You just setting up an additional entity you're going to lend money to or something like that to then turn around and lend it to yourself. Now, they call that actually a strawman technique. You can't go through those motions. So really just breaks down that your retirement account can't buy, sell, trade, loan, or extend a service between you spouse, parents and kids. Now, anytime I say this list, everyone on here heard me say your family, and I didn't say your family. As a matter of fact, I was very specific with my list. You spouse, parents and kids. Interesting. So who am I not labeling? I could be leveraging a sibling, a brother or sister. I could be maybe leveraging an aunt and uncle, a niece, a nephew, a cousin. Right? These individuals the IRS says are. Okay, why is that? And we'll talk about that in just a minute. Okay? But just know it's Always comes down to you. Spouse, parents, kids. Now question, I heard something. Nope. Bueller. Bueller. Going once, twice, sold. Here we go. So now that I've scared your pants off, ya, let's figure out what we can invest in. I always say anything you take title to single family homes, foreclosures, commercial properties, works, LLCs, unlimited partnerships, joint ventures, trust, which is very passive style. Investments, notes, secured notes, mortgages, convertible notes, doesn't matter. This is just a list of some of them. The list goes on and on and on and on. It doesn't really matter. I always say anything you can really take title to. So now that we've gone through that, I literally teach a class that goes over about an hour in those just few slides. Like I said, I'm going really quick. We got to figure out how to use the IRA properly. And there's two ways. One that I call direct ownership, the other way, what I call checkbook control. Right. Now let's go over the direct ownership. It's what I like to label as the beginner way. But anytime you set up a self directed IRA, it's going to look something like this Quest Trust Company for the benefit of your IRA. 1, 2, 3, 4, 5. Now behind the scenes, your IRA really is its own entity. It has its own name and address and signature and tax ID number, right? So this IRA is going to go out in our find a property, find a note, find a syndication. This means the IRA gets to send money in exchange for the title of the asset. For any of those out there who've done some sort of multifamily deal, you've gotten an operating agreement, typically, well, you don't put your name on there. You put your IRA's name notice. As an investor, you're not doing anything different. The only thing that's changing is the name of the investor. It's still you going through the motions. But this means all the profit doesn't go back to you, it goes back to the IRA directly. Right. Knowing that, we got to see what's happening behind the scenes. I always say your custodian stays involved because they stay involved. It's very clean way to do transactions because the IRS doesn't look at you, they look at the custodian, right? It takes 24 hours, 48 hours to fund an investment. And don't forget about the fee. Your custodian gets to charge you a fee to do an investment this way. Right? So always remember that quest charges 125 bucks for you to do any investment. So always give a Quick example of an investment, right? And I partner three IRAs together in this example. I like to do this because I think a lot of people have more money separated versus in one account. This could be my health savings account, could be my Roth, could be my spouse's traditional ira. We found a note. Let's say, well, these are our percentages. Notice I purposely had it equal 100,000. So each IRA would own 20%, 10%, 70% of its investment. When profit gets made, it gets split. 20, 10, 70. Pretty basic. Nothing special, nothing fancy. People put so much thought behind the scenes of these things, and they're actually really easy to leverage and utilize. There are some big pros to it. Pros being that it's an easy way to leverage money. The IRS really likes this method, and it's a great way if you're a beginner. The reason why is there's someone there to hold your hand. Someone's going to take on the audit risk, right? Someone's literally going to review all of your investment documents and make sure it has the right language in there for you, which is what keeps you in compliance and keeps you protected. But that means that there's some cons and they get to charge you a fee. Don't forget about the fees, right? People always put that off to the side. It's not a big fee. If $125 is what's making or breaking your investment, man, that's probably not a good deal. You got to do some paperwork, right? Lastly is your custodian will see everything you're doing. And some people don't like that. Some people like to hide all their stuff. And they know I don't want my name in the county records. That's okay. We got a solution to that. That solution being the checkbook control method. Real quick disclaimer on this one. Do not jump into this method. This is a more advanced method. And if it's the first time you've ever done an investment or ever done a deal, this is not the way to go about it, right? You will get in trouble, right? And you could potentially lose your entire retirement account only because you didn't understand how to go through this the proper way, right? So first off, I just took three IRAs like I did before. And you know that you want to go buy a property, you want to do a loan, you want to do a syndication, but, man, Derek, we're looking doing like 10 deals. Is there a way we can avoid all the fees? Because we don't want to have to Pay a fee every single time. We know what we're doing. We're smart. Well, yeah, of course. What you can do Is have these three IRAs, or it could be one IRA. It's up to you. Set up an entity, call it an llc, call it a trust, call it a C corporation, whatever you feel comfortable with. Once again, the dollar figure you see here is going to be the percentage of ownership. That's why I made it equal 100,000, to make it easy. So this Roth owns 25% of this LLC. Now, your custodian will consider this the investment. But it's not really what you want to do, is it? You want to go out and buy a syndication. So we'll get to that in just a second. But this is what we see, this is what we will report to the irs. Look, your IRA set up its own entity. Now unfortunately, you need someone to manage this entity because it can't be you, can't be your spouse, can't be your parents or kids. So you have to bring in what we call that non disqualified person. I like to joke about this. If you ever see the movie, see the billionaire walking down the room and someone's writing checks for them, that's their non disqualified person, right? That's someone who doesn't benefit directly or indirectly from the investment. This could be your brother or sister, aunt, uncle, niece, nephew, etc. Now if this is something that you're really, really interested in doing right then, now you have this llc, you can do as many investments as you want, never pay another fee again, ever. And you have full control, you have that full checkbook writing ability to where you never have to report anything back to us. So a lot of people like this method, but it is a more advanced method. I literally teach a one hour class on this slide alone where we go through how to set up the LLC and trust, how we locate these specific investments. That non disqualified person, right? So going real fast, guys, but pros and cons, pros, It's a great way if you have multiple IRAs in your family to bring them together. It's very hidden, not only in the eyes of the irs, but in the eyes of your custodian. And boy, is it cheap on fees. There's some downsides. That non disqualified person you better trust because technically they could write themselves a check and run away to Mexico. It's not the IRS's favorite method. They're not dumb in this area. This is actually one of the reasons that new bill has been proposed is because of this Checkbook method, making it a very dangerous responsibility for yourself because it will increase your audit risk. And lastly is you need to set up that entity yourself or your attorney. Your custodian can't do it for you. If you have a custodian that says they'll do it for you, be very careful. They're giving you a cookie cutter one. And it probably doesn't have good levels of asset protection nor is it going to have the right language when we talk about IRS Publication 4975, which deals in prohibited transactions. So be very careful if your custodian does it because you have the same entity everyone else in the whole company does. Right? Some extra issues. The first question I get asked can I be my own trustee or can I be my own manager of that LLC you just mentioned? Derek? No, I just spent 10 minutes talking about how you have to have that non disqualified person. Well, someone told me I could. Nah. Exact publication right here from the IRS says that you can't do it. Right? You're not allowed to provide services to that said llc, meaning check writing ability, nor can the act of any disqualified person. You being the disqualified person who is the fiduciary deals with the income or assets of the plan. It just can't do it. Now, all that being said, on the solo 401k side, you can. So a lot of people for syndications like to set up the Solo 401k, right? Skip some of these real fast just to talk about things so we can talk a little bit about what's new and what's up and coming, right? And I think this is really important just to understand because a lot of people don't realize what's going on behind the scenes. Man. No one likes to follow politics. It's the most boring thing out there. And everyone knows that both sides are lying. I don't care if you're the red or the blue or wherever you fall, right? Both sides have issues and both sides have problems. There's one big problem coming up right now and that's some of the new bills being proposed right now. I always have to stress that this bill has not passed. Right? But we're going to start with all these different bill numbers that you see up here. First off, you no Longer can have $10 million or more in a retirement account. If the bill passes, if you fall into this category, congratulations. High five to you. We're going to skip over that. Okay. Next we're going to talk about RMDs, right? Which is the same thing for anyone over $10 million, I don't care. Not a big deal. I'm not at that point in my life yet. I'd like to be someday soon, but not there yet. So usually when we see these type of things, this is the first thing, if you notice how the Congress labels it on the bill because they don't want people to read through everything like, oh, it doesn't apply to me. Oh, it doesn't apply. It doesn't apply to me. But when we get down to those last three you see there on the screen, those apply to every single person on here. First off is that backdoor Roth. If you don't know what that means, you no longer will qualify for a Roth retirement account, whether it's through your employer or not. Your employer, they want to get rid of this completely. If you make too much money currently, you can just contribute to a tax deferred account and do a Roth conversion. They also want to get rid of not just you being able to do a Roth conversion. They want to get rid of parts like the Roth 401K aspect, where your employer can no longer contribute. This doesn't affect just you guys. Walmart employees get a Roth contribution in their 401k plan. Amazon's employees get a Roth contribution in the 401k plan. And Congress is trying to take that away. So this affects everybody. Next is syndications and accredited investors. They no longer want to let retirement accounts invest into any type of passive deal that involves accredited investors, period. Or any type of syndication. For those of you guys who are brand new, who've never had to raise Capital, more than 98% of all hospitals, hotels, apartment complexes, storage units and senior living complexes in the last 18 years have been built using some sort of self directed IRA fund, using someone's retirement account. And I want you to think of yourself right now. If you're on this call, do you have more money in your checking account or more money in that retirement account? You've been shoveling money away for 10, 15, 20 years, right? Most of us will have more money in that retirement account. Our employer was forced us to throw money in there. They were matching us. So when you're looking at investing into someone's syndication, investing into any type of deal that involves multifamily do I want to use the 100 grand in my checking account and be short or do I want to use the 100 grand in my 401? Most of us want to use the 100 grand in our 401k and that is One thing the Congress is trying to take away next is that whole thing I talked about with checkbook control aspects. So from that point on, Congress also wants to get rid of any IRAs holding some sort of entity, LLC, checkbook, any of those things. So that would eliminate just about most of our clients doing things like oil and gas, doing things from joint ventures, partnering with individuals on unique investments, you know, such as, hey, I'll lend you the money, but I'm going to lend it to you interest free. But I get equity in the deal. Can't do that anymore if the bill passes. So I got, like I said, I have a unique position where I get to speak with senators and congressmen about these topics and express my point of view that I get from you guys right now. If you're someone that falls into any one of these categories, whether you have a Roth, whether you want to raise capital induced syndications, whether you have some sort of LLC that is owned to an IRA or a checkbook control account, you need to let me know, right? There's ways you can make noise, right? And that's what I always label as. You can write to your congressmen and women. You can let your voice be heard. There's a unique website that will go through all this stuff and I will even have an attorney write a letter for you if you would prefer, because you don't know how to reach out to your congressmen and women about these topics. I'm literally the voice for you guys in these areas to help in max those type of things. I tell people, get a Roth IRA before it's too late because they're trying to get rid of them. They really are. It's the account that grows tax free. It's the account that works for the majority of people out there. And it doesn't matter which bank you go to every bank out there, every Fidelity and Vanguard, Charles Schwab, Wells Fargo, bank of America, Quest, we all offer Roth IRAs. Set up one today before it's too late. You want to get grandfathered in in those areas. So that was a ridiculous amount of information. I taught three classes in one. I try to go unbelievably fast, Wayne. So I am.