Explained: How Do You Use Your IRA To Invest In Real Estate? (Michael Blank)

In this episode, Robert talks to Michael Blank about using IRA to invest in real estate.

Robert Leonard:
You also mentioned when you were doing that poll at the REA meeting that you could get funds from an IRA. Talk to us a little bit about how people can raise money from people through their retirement accounts.

Michael Blank:
This one calls for a story with Greg, one of my neighbors. I know him from the Boy Scouts. I have warm chatter with people about what I do. “Yeah, I’d like to learn more about those. Let’s do lunch. I think that’s great.” I described the whole thing, and after 40 minutes mention, “Yeah, minimum investment’s $50,000” and blah, blah, blah. And he goes, “I don’t have that much to invest. I got like, $5,000.” I said, “Oh, really, Greg? Crap. Maybe I should have mentioned that before.” He replied, “Well, you know, whatever.” I said, “Okay. Well, do you have an IRA?” He went, “Yeah, I got about half a million in the IRA.” Excited, I’m exclaimed, “Oh, my gosh! You’re kidding me!” And he’s not the only one. A lot of people, through their employer, have been stocking away money in their IRA for years. The problem is they don’t know that they can use it for investing in anything but the stock market. Their first reaction is “Yeah, but I have to pay penalties, and early withdrawal fees.” No, you actually don’t. And so, when you educate them about the idea of investing with IRAs, the first one is surprising because their CPA financial advisor will tell them, “No, they can’t. It’s illegal.” It’s not, so you need to educate them around that, and maybe show them some news articles, or something like that, where they can invest with an IRA, and that there’s a lot of capital in there. Some syndicators focus on the IRA investors, these are not as sophisticated, they don’t expect the highest rate of return, and they’re getting really, really low returns in a high volatility environment. So IRA money, there are trillions of it. I don’t know what the number is, but there’s a lot of it, and it’s all invested in stocks and mutual funds that people don’t even know where they are, so IRA is a massive source of capital.

Robert Leonard:
When we talk about using retirement funds, we’re not talking about logging into your Vanguard account or Fidelity account, and using that same type of account, correct? We’re talking about having to set up a different account, which is called the SDIRA, which is a self-directed IRA. Talk to us a little bit about the difference between that type of an account that you can use for real estate, and what you can’t use for real estate.

Michael Blank:
So you have to open up a separate IRA. It’s with an IRA custodian. You can just search on Google: IRA custodian. The only difference is that you write a form to your Vanguard, so they transfer whatever money to this IRA custodian. Once it’s in the account, you fill out a form that says, hey, I want you to wire X amount of dollars to this particular LLC that I want to invest in, and that’s exactly what they do. Then, your IRA has shares in an apartment building or an LLC, or a nightclub, or whatever, and so, it’s self-directed. You can direct yourself where that money goes. The law allows a very broad spectrum. Now, there are some laws governing it. For example, you can’t invest your own deal. It’s got to be in an arm’s length transaction where you can’t directly benefit. And of course, you can’t have any of the money coming back in your grubby little hands. It’s got to go back into the IRA.

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