Introduction to IRA Real Estate Strategies – Cleaned Transcript
0:00
Welcome to the Directed IRA podcast. My name is Mark Kohler. I’m here with the amazing Matt Sorensen on a topic today that I think is super powerful. Many of you may not have heard of these strategies—five creative real estate acquisition strategies.
0:17
Mat: Yeah, I think these five strategies you should be using with an IRA when you’re investing in real estate. Some of you might be like, “Your IRA can own real estate?” Yes, and we’re going to talk about common ways we’ve seen clients structure deals to acquire properties that you probably haven’t thought of.
0:34
Mark: Many of us grow up thinking that to buy real estate, you go to the bank, get a mortgage, and buy a house. That’s how it works. But there are creative acquisition strategies that people use to buy real estate, many of which you can use in your self-directed IRA.
0:57
Mark: How can I take my self-directed IRA and make money in real estate? We’re going to share five strategies with you today. I think it’s going to be a lot of fun. But first, we need to clarify that asset classes are not strategies.
1:10
Mat: Yeah, a buy-and-hold long-term rental is not a strategy. That’s an asset. You’re owning the property. We want to talk about the acquisition strategy to get that property or deals you can do around it from your IRA.
1:27
Mat: The first deal I ever did with my retirement account was buying a buy-and-hold rental.
1:32
Mark: I love it. Some examples include short-term rentals, long-term rentals, storage units, commercial property, water rights, and fix-and-flips. These are acquisitions in the real estate lane, but they’re not the strategy to get that asset. Often, the hurdle is seeing something we want but not knowing how to get it.
1:58
Mark: Let’s say you have $300,000 in your IRA and buy a $300,000 property with cash. That’s one strategy, but it’s not creative. We’re going to discuss some creative ones. Clients are doing deals this way with cash every hour or two, which is fine.
2:26
Mark: But we want to cover creative strategies that many of you might not have considered because you weren’t thinking of them in real estate.
Creative Financing Through Self-Directed IRAs
2:35
Mark: For example, instead of buying one $300,000 property with cash, a creative strategy would be buying two $300,000 properties using seller financing. Put down $150,000 and have the seller carry the remaining $150,000. Now you can buy two properties, still cash flow, get a better ROI, and have more leverage for equity growth.
3:12
Mat: That’s a great example. If the seller won’t negotiate financing, you could get a non-recourse bank loan. There are lenders that will lend your IRA money to buy real estate, particularly for buy-and-hold properties. That’s what I did for my first deal.
3:31
Mark: My first deal was seller-financed. When getting debt, whether seller financing or a new loan, you can’t personally guarantee it. That would violate self-directed IRA rules. We have other podcasts and videos about these rules and prohibited transactions.
4:01
Mat: Another option is buying a property subject to an existing loan. You’re not asking for seller financing or getting a new non-recourse loan. The seller might have a loan on the property, and you can assume it in a non-recourse format without personally guaranteeing it.
4:41
Mat: We’ve seen clients do this with as little as $5,000-$10,000 down, plus some improvement costs to make the property rent-ready. This is especially valuable when the property has a low-interest mortgage, like 2.5% or 3%, making it a great rental with better cash flow.
Wholesaling Properties With Your IRA
6:30
Mark: Another creative strategy is wholesaling. Say you have only $30,000 in your IRA but find a $300,000 property. You tie it up with a $30,000 earnest money agreement (refundable if you can’t sell it) and assign the contract for a profit, say $350,000. Clients have made hundreds of thousands this way.
7:35
Mat: You might need as little as $5,000 to tie it up. If you do this in a Roth IRA, the profit—say $20,000—goes back into the Roth tax-free at retirement. Outside an IRA, it’s taxed as ordinary income on your 1040. Coupling wholesaling with a self-directed IRA is a powerful tax play.
8:37
Mat: Another version is options, where developers get land under option contracts, do pre-development work, and sell for a premium. We’ve had clients make over a million dollars in their Roth IRA with this, tax-free.
Becoming the Lender With Your IRA
9:20
Mat: Strategy three is being the lender on deals—acting as the hard money lender. Your IRA can fund real estate deals for developers or flippers at, say, 12% interest plus two points. If you flip the loan twice a year, that’s a 16% annual return, secured by a lien on the property.
11:18
Mat: One client with a seven-figure account switched to private lending with his IRA. He realized that lending personally meant paying 30% federal and 8% state taxes on interest income. In his Roth IRA, he kept 100% of the interest, leading to significant compounding growth over 15 years.
The Roth Dream Home Takeover
12:29
Mark: Strategy four is the Roth Dream Home Takeover. You identify your dream home for retirement—say in Boca Raton or Aspen—buy it now with your Roth IRA using strategies like seller financing or non-recourse loans. You rent it out (short-term or long-term) and let the cash flow pay down the mortgage.
14:42
Mark: When you reach 59½ or later, you can have the IRA deed the property to you tax-free, with all equity growth and cash flow tax-free. You can then move in or rehab it as needed.
15:34
Mat: A client bought a property in Florida with his IRA as a short-term rental, planning to move there later. It was in a traditional IRA, so distributing it would have tax implications. He decided to keep it as a rental due to strong cash flow and bought another property personally. Using a Roth IRA avoids taxes on distribution.
18:06
Mark: A workaround is to do a Roth conversion early at a low valuation to minimize taxes, then let the property appreciate tax-free in the Roth IRA.
Partnering Strategies and Tax Liens
18:48
Mat: Strategy five is partnering. Your IRA can partner in an LLC with other IRAs, your spouse’s IRA, kids’ Roth IRA, or a health savings account to do a real estate deal. Alternatively, your IRA could be the cash partner, while another investor is the work or credit partner.
19:53
Mark: This is great for college savings. Include your kids’ Roth IRA or Coverdell IRA in the deal, even as a 1% owner. The profits can come out tax-free for college expenses in 5-10 years.
20:45
Mark: Bonus strategy: tax liens. Your IRA can buy tax liens on properties where owners default on property taxes. If the owner doesn’t pay back with interest, you can foreclose and take the property. Clients have made millions this way.
21:44
Mat: At our Self-Directed IRA Summit in North Carolina, an investor shared how he used his Roth IRA to buy a tax lien across from Augusta National Golf Course, earning over a million dollars tax-free.
Alt Asset Summit Invitation
23:42
Mark: Double bonus: join us at the Alt Asset Summit on October 16-17 in Scottsdale, Arizona, or online at altassetsummit.com. Learn from experts in real estate, storage, commercial properties, oil and gas, precious metals, crypto, private equity, and more. Network with investors to avoid bad investments and learn proven strategies.
25:51
Mark: Thank you for joining us on the Directed IRA podcast. Our motto: stay calm, self-direct on.
26:20
Mat: Correction—Aerosmith, not Guns N’ Roses or Rolling Stones, sang “Dream On.”
26:39
Mark: Thanks for listening. Disclaimer: This presentation does not constitute an attorney or CPA client relationship. Always consult competent legal and tax professionals for your transactions. This is not investment or financial advice but education and strategies to discuss with your professionals.
