Guide to Real Estate in a IRA:

During this Facebook Live video presentation, you’ll learn about four real-life self-directed investments from Equity Trust Company’s Investor of the Year contest, including:
• A hands-off self-directed investment that netted approximately 40% returns in two years
• An investor who grew his health savings account by $38,000 – tax-free – in just two years
• A family that co-invested their IRAs to create a funding opportunity

Transcript:
What I want to share with you today is four of our runner-ups from the 2018 Investor of the Year. Our first investor, Ann, took a little bit more hands-off approach, to investing in real estate with her self-directed tax advantage retirement plan- a real estate partnership. It was set up as an LLC. Her IRA became a member of the LLC. She had a membership interest in the LLC, and that membership interest was 5.8% for a $145,000 investment.

She sent $145,000 out in return for 5.8% equity in a real estate investment partnership. And this partnership was set up to buy a storage facility in Florida. In over two years, after the sale of the property and therefore the liquidation, if you will, of that entity, she made $58,000 tax-advantaged in her self-directed IRA. That was about a 40% return on investment. That was about a 20% annualized return on investment.

Next is Mark. Mark was unique- he used his self-directed HSA, health savings account. For those of you who aren’t familiar, if you have a high deductible healthcare plan in an HSA, which contributions can be made tax deductible. You can have tax-free growth and tax-free withdrawals, so as long as you’re using it for healthcare-related expenses, you can also self-direct an HSA into real estate and various other alternative assets.

Mark invested $20,000 from his HSA in a real estate investment partnership. His HSA had an equity interest in an entity that was buying a commercial property. And Mark found out about this opportunity through an online crowdfunding website that has these various real estate investment opportunities.

Mark did his own due diligence, and invested the $20,000 with his HSA. He made a 10% preferred return plus after the sale of the property, the capital gains proportion that he received in profit, he made $38,000 after two years. $38,000 in net profit after two years. That was just about 1900% return on investment in two years. So if we annualize that, approximately a 90% plus return on investment.

Our next case study is Karen. Karen was looking for ways to mitigate her tax liability. She found an opportunity to use a self-directed tax advantaged account to potentially mitigate her tax liability.

On her first transaction, she bought a property for $8,000. So this was a fixer-upper. She bought the property for $8,000 with her self-directed IRA. In 18 days, she turned around and sold the property, flipped the property to an investor buyer, selling it for $12,260.06, netting a $4,000 tax advantaged profit. So set up the account, got a property under contract in the name of her IRA. Her IRA sent out $8,000 for the investment, and 18 days after closing, the title company wire transferred the funds back, $12,260.06, for a $4,000 net tax advantaged profit.

Last, but not least, we have Michelle and family. Michelle and her family bought a $24,000 rental property, and the way they structured the transaction is they partnered Michelle’s IRA with her husband’s IRA and her 19-year-old daughter’s Roth IRA, so all three family members’ IRAs partnered in on the transaction and they each had approximately a third ownership interest in the property. For the $24,000 total investment, each party, mother, father, and 19-year-old daughter, their capital contribution was approximately $8,000 for the $24,000 purchase.

It’s netting a 19% return on investment, so approximately $4,500 in net cash flow coming into the three self-directed IRAs on an annual basis. So that $4,500 is split a third, a third, and a third. Each month when that renter is sending the check in to Equity Trust Company for a deposit, those funds are split a third, a third, a third.

Case studies are provided for illustrative purposes only. Past performance is not indicative of future results. Investing involves risk including possible loss of principal.

Equity Trust Company is a directed custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust Company is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional….(read more)

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