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Lending & Borrowering Out of Your IRA
- 1. Either a Lender or a Borrower Be Private Financing with Self-Directed IRAs
- 2. Disclaimer The Entrust Group, Inc. and its franchisees ("Entrust") do not provide investment advice or endorse any products. All information and materials are for educational purposes only. All parties are encouraged to consult with their attorneys, accountants and financial advisors before entering into any type of investment.
- 3. Who is The Entrust Group? LARGEST NETWORK of Self-Directed TPAs. NO CONFLICTS OF INTEREST with how you want to invest. WITHOUT LIMITS imposed by other custodians. OVER 25 YEARS managing self-directed accounts! More than $5 Billion in assets under management!
- 4. What is a Self-Directed IRA? An IRA in which the IRA owner directs all investments in the account. There is no legal distinction between a self-directed IRA and any other IRA except with a truly self-directed IRA the account agreement allows the broadest possible spectrum of investments.
- 5. Tax Savings IRS IRA Investor What are the benefits of self-direction?
- 6. Diversification What are the benefits of self-direction?
- 7. Social investing! Its midnight. Do you know where your IRA dollars are? What are the benefits of self-direction?
- 8. Take control of your retirement! What are the benefits of self-direction?
- 9. Invest in what you know best! What are the benefits of self-direction?
- 10. What types of plans can be self-directed? Traditional IRA (including rollovers) Roth IRA
- 11. Employer plans: SEP IRA SIMPLE IRA Individual 401(k) Roth 401(k) What types of plans can be self-directed?
- 12. Special plans: Coverdell Education Savings Account (ESA) Health Savings Accounts (HSA) What types of plans can be self-directed?
- 13. ALL of the above accounts can be self-directed! What types of plans can be self-directed?
- 14. What can I invest in with a self-directed IRA?
- 15. Investment Choices Real Estate, including foreign property Real Estate Notes Options Secured/Unsecured Notes Limited Liability Companies Limited Partnerships Private Stock And a whole lot more
- 16. Private or Hard Money Lending
- 17. Quote of the Day Neither a borrower nor a lender be; For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry. - William Shakespeare, English playwright, in Hamlet
- 18. Quote of the Day Shakespeare was WRONG! - H. Quincy Long, President of Entrust Retirement Services, Inc.
- 19. Jack Brown has $100,000 in an IRA and wants to loan $70,000 to an investor as a first mortgage on a $100,000 investment home. 70% LTV (loan to value) 12% interest rate Interest only payments with balloon payment in 1 year Minimum loan term of 3 months 3% origination fee Buyer pays all costs for legal and Entrust fees Case Study: Real Estate Note
- 20. Jack completes a Buy Direction Letter for the new note. Title company or a lawyer of Jacks choosing prepares note and closing docs showing the IRA as the Lender: Entrust Retirement Services, Inc. FBO Jack Brown IRA #12345-11 3. Jack approves all closing docs and Entrust wires funds to title company. 4. The deed of trust is recorded and held by Entrust, along with the original note and closing documents. Case Study: Real Estate Note
- 21. Key Points to Remember You cannot loan your IRA money to yourself or any other disqualified person. You and the borrower are free to set your own loan terms. IRAs can loan money unsecured or secured by assets other than real estate, such as equipment or mobile homes. Case Study: Real Estate Note
- 22. People Restrictions on IRAs Disqualified Persons = Those persons who cannot benefit from or enter into transactions with your IRA or other plan.
- 23. Fiduciary F (includes IRA Owner) Member of Fs Family Corporation C if F owns (directly or indirectly) 50% or more of vote or value of stock Partnership P if F owns (directly or indirectly) 50% or more of capital or profits interest in P Trust or Estate T if F owns (directly or indirectly) 50% or more of Beneficial interest in T 10% or more partner or joint venturer with C Fs Spouse Fs Ancestor Fs Lineal Descendant LD LDs Spouse Officer or Director of C Highly Compensated Employee of C (10% or more of wages) 10% or more shareholder of C Person with management or administrative functions of P Highly Compensated Employee of P (10% or more of wages) 10% or more partner of P Trustee of T Highly Compensated Employee of T (10% or more of wages) 10% or more beneficial interest owner of T 10% or more partner or joint venturer with P 10% or more partner or joint venturer with T IRA
- 24. Lending Money Prohibited Transaction Restrictions Any direct or indirect Mr. IRA Disqualified Person
- 25. You CAN combine your IRAs with other IRAs to make a loan. Partnering IRAs to Make a Loan
- 26. Usury Whats a little usury among friends?
- 27. What is the effect of usury? Is there a usury prison?
- 28. Usury Usury rules in Texas: 18% either contracted for, charged or received . Penalty for usury 3X excess interest plus attorneys fees for commercial transaction. Late charges (not to exceed 5%), prepayment penalties and return check charges are NOT interest. Points collected by lender up front ARE interest.
- 29. Foreclosure Worst Case Scenario
- 30. Foreclosure Best Case Scenario
- 31. Foreclosure Foreclosure procedure in Texas: Send notice of default and demand to cure default 20 days homestead, unclear for investor loans, but common to send 20 day notice anyway. Send notice of acceleration and copy of foreclosure posting at least 21 days prior to foreclosure. Post foreclosure notice on notice board at county courthouse and file in the real property records. Foreclose on first Tuesday of each month. Note: No redemption rights in Texas!
- 32. Lenders Perspective Things to consider from a lenders perspective: Do not loan on something you wouldnt be excited to own if the borrower defaults. Generally, do not advance funds for repairs until the repairs are done, and inspect before advancing funds. Do not loan to someone you would feel uncomfortable foreclosing on!
- 33. Lenders Perspective Things to consider from a lenders perspective: If the loan goes into default, do not delay take action immediately! Collect interest monthly so you will know if the borrower is getting in trouble. If you are unsure about a loan, hire a professional to help you evaluate the deal.
- 34. Lenders Perspective Things to consider from a lenders perspective: 7. Get title insurance for your loan! Verify that hazard and, if necessary, flood insurance is in place naming the lender as an insured. Insist on evidence that property taxes are paid whenever they become due.
- 35. Case Study Hard Money Loan Loan Amount: $150,000.00 LTV (Loan to Value): 50% Interest Rate: 12% per year Interest Only Term: 24 Months with 2 Optional Extensions Discount Points: $6,000 (4%) Lien Position: 1 st Lien
- 36. Does IRA lending work? Balance of Account 9/25/2006: $64,960.09 Anticipated Balance 9/25/2009: $90,259.23 Dollar Increase in 36 Months: $25,299.14 Percentage Increase in 36 Months: 38.95%
- 37. O.P.I. Borrowers Perspective: Making Money NOW OTHER PEOPLES IRAs
- 38. Create your own private financing source Borrowers Perspective: Making Money NOW
- 39. Partnering with OPI Borrowers Perspective: Making Money NOW
- 40. Things to consider from a borrowers perspective: Borrowing private money is all about one thing your relationship with the lender! Take the lenders temperature when it comes to risk tolerance and how desperate they are for the income. Make the process painless for your lender! If done within an IRA, learn the IRA custodians procedures so that all the lender has to do is sign the buy direction letter. Protect your lenders interest at all costs, even if it means you lose money on the deal! Borrowers Perspective: Making Money NOW
- 41. There are TRILLIONS of dollars in retirement accounts! Borrowers Perspective: Making Money NOW
- 42. At every gathering there are MILLIONS of dollars available for investment. Borrowers Perspective: Making Money NOW
- 43. Let me help you recover your stock market losses with loans secured by real estate. Borrowers Perspective: Making Money NOW
- 44. Emphasize that as a real estate investor you are helping the economy recover by improving property values and that their investment is a socially responsible one. Borrowers Perspective: Making Money NOW
- 45. Provide the prospective lender with the details of the transaction, including your price and comparable sales to show value. Borrowers Perspective: Making Money NOW
- 46. Have a success book available! Borrowers Perspective: Making Money NOW
- 47. Borrowers Perspective: Making Money NOW Interest Rate: 15% Points Charged: $0 Entrust Fees (Paid by Borrower): $370 Attorney Fees (Paid by Borrower): $450 Minimum Loan Term: 3 months
- 48. Borrowers Perspective: Making Money NOW Results: Interest Paid to IRA: 3.75% in 6 weeks Profit made by Borrower: $20,000 Amount of Borrowers Money Used: $0
- 49. Borrowers Perspective: Making Money NOW Appraised Value: $120,000 Loan Amount: $67,000 Escrow for Repairs: $5,000 Interest Rate: 10% on $72,000 = $7200/yr Loan Term: 3 years Owner Financed: $120,000 @ 8% = $9600/yr
- 50. Case Study - Shared Appreciation Mortgage House can be bought as is for $70,000, needs minor fix-up for $3,000, and is worth around $100,000. Taxes and insurance are around $250/month. Tenant with long term lease is in the house for $900/month. Property will not cash flow with a $75,000, 12% interest-only loan (-$100/month).
- 51. Case Study - Shared Appreciation Mortgage The solution: The borrower had his financial friends IRA loan him $75,000 at 6% interest with a shared appreciation mortgage. The borrower walked away from closing with cash in his pocket for repairs, a property which will now cash flow at positive $275/month, and one-half of the equity.
- 52. How can I get more information? www.EntrustTexas.com P: 214.800.3488 F: 800.320.5950 [email_address] For More Information:
Editor's Notes
- #2: This program is designed to educate individuals, business owners, tax advisors, financial planners, realtors and others in the types of tax advantaged retirement arrangements and planning tools that are available. The attendees will gain an understanding of how to use these arrangements, when to use these arrangements, the types of arrangements to use given key circumstances. The attendees will learn the keys to the tax advantaged arrangements as well as the key investment choices available in a self-directed retirement arrangements. Background to share and set up the course title TOOLS and TECHNIQUES: Tax advantaged planning falls into two categories: TOOLS are the types of tax favored arrangements congress has created to entice individuals and business owners to plan for lifes events such as health care and retirement. TECHNIQUES are the investment vehicles that provide for growth and preservation of these tools and assets. This course will educate the attendees on how to use the tools and techniques for a successful retirement PLAN while increasing buyers, buying power for these types of investments.
- #11: Let the audience know what types of plans can be self directed. Let them know that all types of IRA and qualified funds can be usedespecially those old 401k funds that are still sitting with ex-employer plans. Whether youre an individual or owner of a business, Entrust has a solution for you. Cover the tax benefits that these individual or business plans can offer. Tax advantages through tax deductible contributions and tax deferred earnings with the potential through the Roth accounts of tax free earnings. Discuss the difference between a Traditional account and a ROTH account. KEY DIFFERENCE IS: Traditional accounts you pay tax later not now Roth accounts you pay now not later CONTROL over taxes NOW vs. later. What will tax brackets be in 10, 15, 20 years? SALES POINT: All types of plans can be self directed. If you qualify for a ROTHset one up. If you have an old employer plan sitting around.move it to your Entrust account. Dont forget to mentions those 401k plans that they have sitting around at old employers. Those can easily be rolled over to their Entrust account.
- #12: Let the audience know what types of plans can be self directed. Let them know that all types of IRA and qualified funds can be usedespecially those old 401k funds that are still sitting with ex-employer plans. Whether youre an individual or owner of a business, Entrust has a solution for you. Cover the tax benefits that these individual or business plans can offer. Tax advantages through tax deductible contributions and tax deferred earnings with the potential through the Roth accounts of tax free earnings. Discuss the difference between a Traditional account and a ROTH account. KEY DIFFERENCE IS: Traditional accounts you pay tax later not now Roth accounts you pay now not later CONTROL over taxes NOW vs. later. What will tax brackets be in 10, 15, 20 years? SALES POINT: All types of plans can be self directed. If you qualify for a ROTHset one up. If you have an old employer plan sitting around.move it to your Entrust account. Dont forget to mentions those 401k plans that they have sitting around at old employers. Those can easily be rolled over to their Entrust account.
- #13: Let the audience know what types of plans can be self directed. Let them know that all types of IRA and qualified funds can be usedespecially those old 401k funds that are still sitting with ex-employer plans. Whether youre an individual or owner of a business, Entrust has a solution for you. Cover the tax benefits that these individual or business plans can offer. Tax advantages through tax deductible contributions and tax deferred earnings with the potential through the Roth accounts of tax free earnings. Discuss the difference between a Traditional account and a ROTH account. KEY DIFFERENCE IS: Traditional accounts you pay tax later not now Roth accounts you pay now not later CONTROL over taxes NOW vs. later. What will tax brackets be in 10, 15, 20 years? SALES POINT: All types of plans can be self directed. If you qualify for a ROTHset one up. If you have an old employer plan sitting around.move it to your Entrust account. Dont forget to mentions those 401k plans that they have sitting around at old employers. Those can easily be rolled over to their Entrust account.
- #14: Let the audience know what types of plans can be self directed. Let them know that all types of IRA and qualified funds can be usedespecially those old 401k funds that are still sitting with ex-employer plans. Whether youre an individual or owner of a business, Entrust has a solution for you. Cover the tax benefits that these individual or business plans can offer. Tax advantages through tax deductible contributions and tax deferred earnings with the potential through the Roth accounts of tax free earnings. Discuss the difference between a Traditional account and a ROTH account. KEY DIFFERENCE IS: Traditional accounts you pay tax later not now Roth accounts you pay now not later CONTROL over taxes NOW vs. later. What will tax brackets be in 10, 15, 20 years? SALES POINT: All types of plans can be self directed. If you qualify for a ROTHset one up. If you have an old employer plan sitting around.move it to your Entrust account. Dont forget to mentions those 401k plans that they have sitting around at old employers. Those can easily be rolled over to their Entrust account.
- #18: Investment Choices- This is where we can show the audience what investments can be held in their Entrust Account. Reiterate that they are not limited to just securities. They can invest part or all of there retirement funds into these assets. SALES POINT: They have a world of choices with an Entrust Plan
- #19: Investment Choices- This is where we can show the audience what investments can be held in their Entrust Account. Reiterate that they are not limited to just securities. They can invest part or all of there retirement funds into these assets. SALES POINT: They have a world of choices with an Entrust Plan