Thank you Quincy for taking time out of your busy schedule
to discuss the nuts and bolts of a self directed IRS.
Thanks for asking me.
Explain what a self directed IRA is, why it is advantageous
for an investor to have one?
A self-directed IRA is no different legally than any other
IRA. The difference is simply that with a truly self-directed
IRA your account agreement with the administrator or custodian
allows you to invest your IRA's funds in any asset not prohibited
by the Internal Revenue Code. Since there are so few restrictions
contained in the law, this allows investors to purchase many
"non-traditional" assets such as real estate and
secured and unsecured notes. In other words, you can invest
your IRA in what you know best, which for many people means
something other than the stock market.
What is the procedure for buying an asset in a self-directed
Once you know the procedures followed by your IRA administrator
or custodian, buying real estate, notes, or any other kind
of asset is extremely easy. Just as you can direct your IRA
to buy a stock or mutual fund, with a self-directed IRA you
can direct the IRA to buy non-traditional assets. An analogy
can be made to a corporation buying real estate or a note.
A corporation cannot act on its own - it must have an officer
or the board of directors make a decision to do a transaction
and pass the necessary resolutions authorizing a person to
sign on behalf of the corporation. With a self-directed IRA,
you are in complete control. Once you find an asset you want
your IRA to own, you send a buy direction letter directing
and authorizing your IRA administrator or custodian to purchase
that asset. Normally you must also sign as having been "read
and approved" any document you want your administrator
or custodian to sign. The administrator or custodian then
sends the funds to the seller or title company, and the asset
is now owned by your IRA.
What are some examples on how you can purchase and sell real
estate using a self-directed IRA?
An investor's IRA purchased a property for $23,000 cash. The
property was rehabbed using contractors who were not disqualified
from doing business with the investor's IRA. All rehab expenses,
utilities, property taxes and homeowner's dues were paid from
the IRA's funds. The total rehab expenses were $24,197.80.
The property was sold in approximately 10 months
with the net proceeds to the IRA being $85,661.78. The IRA's
profit after all expenses was $36,982.58, or about 78.36%
return in only 10 months!
Are you telling me that this is also tax free?
Yes!!! Nice, huh?
What is another example? I'm liking this.
An investor purchased a pre-foreclosure property in his Roth
IRA for $11,213.22 cash, including closing costs. Approximately
7 weeks later the IRA sold the property to a neighbor for
$24,734.00 cash and a $5,000.00 seller-financed note. This
amounts to a 265.17% profit in only 7 weeks! Because this
was done in a Roth IRA, this enormous profit is TAX-FREE FOREVER!
Do you have other examples:
Yes. Another example was an investor noticed what appeared
to be a large abandoned house in downtown Houston. After doing
her due diligence, she found out that the owner lived in California
and was being sued for owing almost $100,000 in delinquent
taxes. She purchased the property subject to the delinquent
taxes in her Roth IRA with only $3,036.50 paid in closing
costs and the $75.00 purchase price. The property is on the
tax rolls for $302,000, but needed substantial repairs. Three
and one-half months later the IRA sold the property to another
investor and netted $46,707.71 from the sale after paying
all delinquent taxes and selling costs. Because this property
was debt-financed (the delinquent taxes are considered the
same as a mortgage), her Roth IRA had to pay a special tax
called unrelated business income tax (UBIT). However, even
after paying the tax of $15,539.00, her Roth IRA went from
$3,040.00 to $32,882.66 in only 3 1/2 months!
WOW!!! And this is legal?
How can options on notes or real estate be used in self directed
many non-traditional assets, options are perfectly acceptable
investments in a self-directed IRA. You can buy an option
on anything, including notes and real estate. An option is
the right, but not the obligation, to purchase the asset you
have an option on. If your option (or contract) is assignable,
you can build your retirement wealth very quickly. For example,
one of our clients put a burned out house under contract in
his daughter's Coverdell Education Savings Account (formerly
known as an Education IRA) with only $100 earnest money. He
then located an investor willing to pay $8,500 more than the
sales price the ESA was paying. At closing 3 weeks after the
contract was signed, the ESA received a check for $8,500 on
its $100 investment. This is a profit of 8,400% in less than
4 months! When was the last time you did that in the stock
As I told you, the stock market made a millionaire out of
of course I was a billionaire when I started. I like
sticking to things I have control over.
Is the purchase of high yield notes a good technique for self-directed
beauty of a self-directed IRA is that you can invest in what
you know best. If you know how to buy notes or you can find
a note broker you can trust to buy notes in your IRA, this
can be a great way to build your retirement wealth. With a
self-directed IRA, your success or failure is completely within
For many of us the key word there is CONTROL. In my NOTE PROFESSOR
NOTEBOOK, I show a technique of how you can actually put notes
in your IRA for free. It is called "HAPPY TAILS TO YOU".
I know there is a myriad of rules and regulations governing
self directed IRAs. I cannot keep up with them. Will you be
able to guide the investor on how to structure a deal to comply
will all the IRS guidelines?
functions of a self-directed administrator or custodian are
generally limited to the following: 1) Hold your IRA's assets,
including cash and investments; 2) When directed by you with
proper paperwork, to send your funds to the seller or closer;
3) To verify that your assets are vested correctly in the
IRA's name; 4) To file the appropriate IRS tax reporting forms
for distributions and contributions; and 5) To answer your
questions about the rules for IRA transactions, including
prohibited investments, prohibited transactions and disqualified
as your administrator Entrust cannot generally give tax, legal
or investment advice, we can and routinely do answer basic
questions about the rules and can guide you and your CPA or
attorney if necessary on where to look for answers beyond
the basics. Normally Entrust will not suggest a particular
structure for an investment but in many cases we can help
you determine if your proposed structure will work within
Sounds like this is why they call it self directed. You will
just help us make sure we are playing within the rules.
Explain the procedure of setting up a self directed IRA, and
what the fees are. How would investors contact you to discuss
their IRAs and set up their self directed IRA?
procedure for opening a self-directed IRA is as easy as 1,2,3.
First go to our website at www.entrusttexas.com and select
the type of IRA you want to open. Second fill out a brief
application, fee disclosure and, if necessary, an IRA Transfer
or Direct Rollover form. Finally, mail the original forms
in along with a copy of your driver's license, a check for
the account opening fee and a separate check if you are making
may email Quincy Long, President of Entrust Retirement Services,
Inc. at firstname.lastname@example.org,
or call us toll-free at 800.320.5950. If you are unsure about
the application, you may fax a copy for us to review before
you send it in at 281-646-9701. We look forward to serving
your retirement account needs!
Thanks again Quincy for your taking time to give us a "in
a nutshell" view of self directed IRAs. For those who
do not have a self directed IRA, you are leaving money on
the table. You will find no one in the industry who is more
knowledgeable than Quincy. He is co authoring a book with
Hugh Bromma on IRAs
be sure to look for it. When you
contact Quincy, tell him Tom sent you.
is my usual disclaimer. This information is for general information
only. It should not be used without consulting competent legal
and tax advisors. If you try any of these techniques without
competent advice, you need to be taken out of the gene pool.
My last April seminar was a sell out, and a few were even
turned away because there were no more seats. Some have requested
of Cathy Crowe that I repeat my seminar. I will be giving
a repeat seminar on THE ABCs of NOTES and REAL ESTATE on Saturday,
June 25th, from 8:30 a.m. to 5:00 p.m.
this is a "hands on seminar" where we cover everything
from from how to use a financial calculator with ease, to
structuring note deals to create wealth. We will also cover
getting notes for free to put in your IRA. THE CLASS WILL
BE LIMITED TO 20. You will need to bring a HP 10BII financial
calculator to class, unless you are familiar with another
financial calculator. I will be teaching with the HP 10BII.
I will be teaching from THE NOTE PROFESSOR NOTEBOOK, which
you can purchase at the discounted price and have it sent
to you prior to the seminar, if you contact me directly.
details on the seminar, contact Mayra@dfwrein.com.
Of course, you can always contact me.
look forward to seeing you there.
Henderson a.k.a THE NOTE PROFESSOR
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