EP 22 – Investing in Rentals, Flips, and Vacation Homes With Your IRA
Yes, your IRA can own real estate. From the rental down the street, to a flip in another city, to a short-term vacation rental – these are all investments you can own with a Self-Directed IRA at Directed IRA. Mat and Mark break down the rules and structures for these common investments.
Mat Sorensen: Welcome, everyone, to the directed IRA podcast with Mark Kohler and Mat Sorensen, we are here together.
Mark Kohler: Together, we’re touching each other in appropriate ways. But if you’re watching on YouTube, you get the pleasure of no splitscreen.
Mat Sorensen: No, this is live and in the flesh. I’m in the studio here with Mark where you always get to see him looking all cool with his background. Now to the lights. Yeah. Is that what it is? It’s just the lighting.
Mark Kohler: You know what? It was my good looks. Now the truth comes out.
Mat Sorensen: Yeah, it’s definitely it’s just all the lighting guys, you know. Well, today, since we’re together, we said we got to do a cool topic today. Yeah.
Mark Kohler: Something we haven’t done in a while. And we’ve been it’s true. We’ve been a little too hyped up maybe on Crypto and some chunking strategies and back door Roths and the deadline’s coming up. We thought we got to get back to our core.
Mat Sorensen: Yeah, well, they’re called the bread and butter real estate, you know. Well, that’s the oldest investment in the book, isn’t it? Like owning real estate it’s not the oldest business. You know,
Mark Kohler: Maybe Cain and Abel, they were like Cains, like, get off my land. Yeah. And he hit Abel with a rock. He said, Yeah, this is mine.
Mat Sorensen: But I think more people have, you know, made millions in real estate than anything else. Yeah. Family fortunes have been won and fought over it. So we all talk about how you.
Mark Kohler: Wars have been fought.
Mat Sorensen: Wars have been fought over.
Mark Kohler: Yes. Yes.
Mat Sorensen: Not just family squabbles.
Mark Kohler: Yeah. And we want to give a shout-out to our producer, director Key Grippe gaffer and lunch runner Corey White. The Magnificent we’ll get him on camera here someday, but he’s done a great job. We’re here in the studio together. I’m just breaking it down. I think it’s a treat for many of you to listen because our comedy is going to be better because it’s faster. I play off each other, talk. You be the judge. All right. So we need to cover some quick news before we get to this. I ran next door to the hair salon. Our studio was really incognito. You wouldn’t know. It’s like it’s like a red door. You just got to
Mat Sorensen: As it red. Green. Yeah.
Mark Kohler: Yeah. Sorry. It’s a blue door.
Mat Sorensen: Yeah, it’s a red door. At some point you want to paint,
Mark Kohler: But next door we have the hair salon and all the ladies. They did our hair and makeup today so.
Mat Sorensen: They did Marks. They did Marks. This is me off the plane and a rental car drive away. So.
Mark Kohler: So I ran over there to get the news. I ran over there to get up. And I’ve got the star this week and it’s pretty volatile. Megan is causing problems for the monarchy. Yeah, Harry married an American. And that’s not what Europe or Britain needed. Was an American jacking up their monarchy. And then Brad, Angelina, Angelina, Brad and Angelina are still going at it. So if you have to pick up your most recent copy, The Star, in conjunction with The Wall Street Journal, this is most important news out there.
Mat Sorensen: Yeah, no, thank you for Mark. What would we do without him? I mean, what would we do without him? Yeah, well, I. I mean, I still love Mr. and Mrs. Smith, you know. Yeah. Great show, Brad and Angelina. You know, I hope you the best. And your kids too, of course. But when we’re talking about real estate, if I can transition out of that. Yeah, I think back to what we want to talk about. At least I want to talk about Mark would probably be good going over that. But we’re talking about rentals with your IRA. Flip’s with your IRA and the vacation home, Airbnb VRBO, however you’re doing it. We’ve had hundreds of thousands of clients do each of these strategies. And Mark and I do these ourselves. So we’ll talk about those and just give you some insights on what to think about how you pull it off.
Mark Kohler: And I want to clarify that Mat said you may have felt Mat just had hundreds of thousands of clients of ours.
Mat Sorensen: As it was hundreds of thousands.
Mark Kohler: Thousands? Yeah, we’re we’re we like to think we’re a big deal, but not hundreds of thousands. Just hundreds and thousands.
Mat Sorensen: Yeah, yeah.
Mark Kohler: Yeah. So Mat and I have also done so many, some not so many, but a number of real estate projects in our own personal IRAs. OK, first disclaimer for anybody that might be new or I should say first definition we need to get clear on. And for those of you that maybe someone shared this podcast with you, thank you for being here. We’ve been doing a podcast for over ten years. We have millions of downloads. We do. This is the most recent platform we’ve chosen is a podcast specifically tailored to self-directing. And please get into the podcast history and listen to some basic shows if this is completely new to you. But one of the definitions I want to give right off the bat is when we say buying real estate rentals, Flip’s or vacation homes in an IRA that includes Roths, 401ks, SEPs, simples
Mat Sorensen: Health savings account, health
Mark Kohler: Savings account, education savings accounts.
Mat Sorensen: All those accounts you can self-direct and buy real estate so.
Mark Kohler: That when we say IRA, from now on, the rest of the show, that could be a Roth traditional and there’s group 401ks that are getting more and more flexible, not as many by any means. Don’t rush into your 401k department at McDonald’s and say, I want to self-direct they’ll throw food at you. But you’re not only
Mat Sorensen: At Burger King. Can you do that? Because the 401k at Burger King. You can have it your way.
Mark Kohler: Dude, that is a new one. Oh my gosh, I’ve never heard that one. We get in here live and and you know, It’s just spontaneous.
Mark Kohler: Yeah, the Burger King 401K employees. They’re like they can buy real estate, the McDonald’s ones. No, you can buy a mutual fund. Yes.
Mark Kohler: Now for those lawyers working at the Burger King organization that you have the full copyright and we give you in fact, we want to give you a plug. Go eat Burger King today. So, yeah, now we’re good. We’re out of the hot seat.
Mat Sorensen: You’re welcome. We’re on your side. We’re well, let me say this. You know, what’s the process here to start? Like, what’s ground like? The first thing you got to do, the first thing you got to do is get out of the current account you typically have let’s say you’re in a area, TD Ameritrade or Fidelity. If you go there and say, I want to buy real estate, I want to do this flip, I’m going to flip a property in my IRA and you call up your advisor or you call up your E-Trade account, you’re like, hey, I want to do this thing. You can’t do it. You can buy stocks, bonds, mutual fund, because that’s what we sell, so if you want to do this, you need to move your account to a Self-directed IRA custodian, like our company Directed IRA, where we let you do real estate if you want. Yeah.
Mark Kohler: Let me give you an example. This was literally the phone call I had while you were in the conference room on your phone call. So Mat showed up in Idaho today and I got a phone call from a local number, which is I thought, oh, it must be the dealership. I got to go pick up my car. That’s what I thought it was. And nope, it was a. A local real estate developer, and in Idaho, he had got my number from a friend of the family who works at Edward Jones. I’m going to leave it at that because I that Edward Jones buddy of his said, you want to buy real estate, you got to call Mark and Mat. They’re the experts. And I was flattered. And I told him, you like, what are you doing in Idaho? And I’m like. Dude let me tell you who we are, and he was like, oh, my gosh, I’m so lucky that you’re down the road. But anyway, here’s the point. I said, you’re Edward Jones guy told you about us. He goes, yeah, I go. He could be fired for that. He could you can’t just say, oh, you know, this isn’t like Miracle on 34th Street where open the Yellow Pages. If we don’t have it, we’ll find it for you at a better price. Whatever. Edward Jones is not allowed to just send their customers away with two or three hundred thousand dollar IRA. That’s what he had. And I was like, why did he do that? And he goes, well, he’s a really, really close friend. And it was kind of hush hush. And so that’s what you’re up against. So any of you out there that have an IRA
Mat Sorensen: Which is so sad, right? Yeah. Like to tell people, help them get what they want, you know, so so now it’s tax-free. So if you have a Roth IRA or you have a traditional IRA, let’s say it’s at Edward Jones or whatever, you’re going to go over to Directed IRA, our company. And we’re just like going from Merrill Lynch to Morgan Stanley or Bank of America to Fidelity with your IRA account. We’re just you’re going from Edward Jones to Directed IRA. And if you have a Roth IRA there, you’re going to set up a Roth IRA with us here at Directed IRA.
Mark Kohler: Mat makes that sound so easy.
Mat Sorensen: But and there’s we have a lot of videos on the process. No, no, no.
Mark Kohler: What I’m talking about is you’re going through a breakup now. I don’t want to bring you into this because he’s a single guy and he has breakup’s all the time. And do you want to talk about your breakup? It wasn’t easy. Can I just say that he’s not enjoying this, OK? It was not easy. You know, he was a wreck over here. He’s in tears, huddled up in a corner when I walk in in the morning. So what I’m saying is there is I keep I went I came back to the Edward Jones thing again. This is a political situation. It is not going to be easy sometimes. I had a call yesterday from a client that was trying to get out of Morgan Stanley and they were just being a butthead. So it’s not the company itself, but a lot of these financial advisors that you’ve been working with for years, they’re not excited for you to take your money and go buy real estate because they don’t get a commission for that. They want to sell you stocks, bonds, mutual funds, ETFs. So I will just say in summary, I love Mats practical point. Figure out what you got, you want to do some real estate, Rentals, Flip’s or vacation homes, we’re going to come to that in a moment, but you got to get your money to the place to do it. And when you break up, breakups aren’t easy.
Mat Sorensen: I mean, Taylor Swift made a career on breakups. You know, she’s got won Grammys for basically that the breakups OK. So so
Mark Kohler: Is she. I got to see is she in Star this week. OK, I will find out Taylor Swift
Mat Sorensen: What T Swift’s been up to. So, yeah. OK, OK, well let’s break it down here. And each one of these is a little unique but a similar process. So the first thing to know if you’re new to this and again, we have a whole we have so much content on Self-directed IRAs that you learn on. But let me just hit some ground rules. You’re not buying the property. Your IRA is just like your IRA could buy Facebook stock or your IRA could invest in a mutual fund, your IRAs, buying real estate. OK, your IRA is going to put the money down to get it. Your IRA is going to get the income on it. Your IRA is going to pay the expenses on it. You’re not involved. This is Mat Sorensen IRA. I’m not touching it. I’m not getting the money. I’m not sending money. It’s going on in and out of my IRA account in my IRA is on the title to the property.
Mark Kohler: I love it. And that’s option one. And it’s not as common because it can be a little clunky because if you’ve got a call pest control or you need to pay for some services to be done at your rental, you’re not in the mix. So you’ve got to call the custodian, the trust company, call us to do it.
Mat Sorensen: And you could use a property manager if you’re going to have your IRA own real estate directly. And it’s like, let’s say a rental or something like that or even like the Airbnb or the flip, you’re going to need a property manager in the middle. Typically, that’s going to help get the money, pay the bills.
Mark Kohler: Yeah, but still, you know, it’s an extra hand in the pot, you know, I appreciate that this brings us to the LLC. Yeah. And so I think I’m going to just come out and say it right now. If you’re going to buy Runnels Flip properties or buy vacation homes, all three and are viable options. We have hundreds, if not thousands of clients doing that. We have the LLC is. Yeah, we do have thousands the LLC is the way to go. It’s the best structure to open a bank account, which I want to talk about today. I went to the bank yesterday and opened an LLC for my IRA bank account. I got a trick. You’re going to love it and so you’re going to want an LLC. Now, someone called me the other day and said, I need a what do you call it, a real estate IRA. I’m like, there’s no such thing as a real estate IRA. It’s an IRA that’s going to invest in an LLC that’s going to buy real estate. So you want to kind of get that terminology down, too, because it’ll help you as you deal with professionals.
Mat Sorensen: Yeah, the system. Yeah. And so you have the IRA account. OK, your money came over from, let’s say, Edward Jones. Now that you’re Directed IRA account, which you can self-direct, you could buy real estate, you could buy Crypto or do all these things you can do with Self-directed IRAs, but you’re going to put it into an LLC that the IRA owns a hundred percent. Now, the reason Marks we’re bringing that up is the two reasons why you may want to use the LLC. One, you’re going to get a bank account for the LLC. The IRA is going to invest its cash into the LLC bank account. Now, who owns the LLC? The IRA? You’re the manager, though, of the LLC. We have a whole episode just on the IRA/LLC structuring options and rules. Now, as manager of the LLC, you’re not getting paid. You have no ownership interest, you’re not getting a salary. But you’re like the president of the corporation manager of analysis at president of the corporation. You get to sign on stuff you’re going to sign on the bank account. Now the LLC goes out to buy the properties, let’s say it was called ABC Investments LLC. ABC Investments LLC, the buyer on a contract you are signing as manager. You already have the bank account set up to Mark and talk about this, that you’re going to sign the check and cut and cut the check. You’re going to receive the rental income, the LLC bank account. If it’s the flip, you know,
Mark Kohler: Before you go to flips, slow down. Right. Some of your like man, that’s a lot of drinking from a firehose. So you’re good. You’re good. You’re on a roll. You’re on a roll. Let’s let me let’s slow down the record return turntable. Let’s slow down the turntable here for just a minute. Little 80s throwback there or something like what’s that? You’re too young. OK, so. Step one, you’ve got IRA money somewhere or you want to contribute to an IRA, do a rollover. Step two open a Self-directed account, get that money over there, step three, this is going to be a new frontier for many of you. So I would suggest you immerse yourself in a little bit of education. You’re doing it now with this podcast. Please go back and listen to a number of these podcasts, learn how these accounts operate, get the book SDIRA Handbook Self-directed IRA Handbook, Self-directed IRA handbook. Sorry, you go to SDIRAHandbook.com, the Self-directed IRA handbook up here on the wall behind Mat Sorensen here on the on the wall. Start reading that book and then step three. So step three is get some education going, do it on a weekend, just have a weekend snuggling up to Mat Sorensens book. So romantic option. Next step four call and get an appointment with one of the lawyers to get your LLC going. We will move mountains to have that meeting with you as soon as possible. Don’t cut corners and think you can go. Just have done this, some legal zoomer, some doc service, because the main goal of that meeting is not to just get the LLC up, it’s to understand what happens next. That list of questions you have, that’s what the lawyers there to do for you
Mat Sorensen: And how you operate the LLC, like you need a little crash course on how to operate that thing. It’s like buying a car, but you don’t even know where to turn it on or which one’s the brake or gas. You know, like we need to kind of walk through how it works. And it’s not rocket science, but it does take a little education. And that’s what we’re going to be a resource for in the long run.
Mark Kohler: And that’s included with the setup of the LLC. You come with a list of questions. Use the lawyer to really break down some of those questions. Meanwhile Directed IRA or in the real estate project, your realtors, whatever’s going on, that’ll keep moving along as well. So you’re kind of orchestrating your playing orchestra or symphony. Yeah. What do you call the guy that’s doing? The conductor. Conductor? You’re the conductor of the. I’m trying to get a lot of words out here. You’re the conductor of this orchestra and you’ve got to realize there’s going to be moving parts at the same time.
Mat Sorensen: Mr. Holland’s Opus. Yes, Mr. Holland. That’s I see. With the conductor. He was.
Mark Kohler: Yeah. Yeah. Now, if you’re going to find a movie when I said this is New Frontier. What do you think of. I watched the two nights, you know, Star Trek, the new frontier, the last Frontier.
Mat Sorensen: The new Star Trek stuff’s pretty good. Is it really I mean, like this over like Chris Pine. What’s the one? Oh, yeah. The movies.
Mark Kohler: Yeah, the movies with Chris Pine he’s a stud. I met him at a fundraiser. He’s not as tall as you think. And Wonder Woman that he he she was a little shorter there had a lot of scenes, kind of like a Tom Cruise freaking awesome actor, but a little shorter. So wouldn’t any of these women leads to work around anyway? So this is a new frontier. I’m going to learn a little bit about this. You’re going to get the lawyer on the phone and you’re going to set up the LLC. If you have to wait a few days to get the LLC going, that’s OK, because you’re going to be orchestrating these other moving parts, so. Now, your LLC is up and funded, you’ve got a little bit of education behind you, you had a meeting with the lawyer, your understanding what happens next? Now we can talk about these three asset classes, rentals, fix and flips and vacation properties. So let’s just hyper focus on rentals for a minute. So I got my LLC formed, which you could combine to other IRA accounts in creating or your own cash. That’s what the lawyers going to help you do. You may say, well, I don’t have enough IRA money to buy a rental so we can talk about hard money loans. Well, we’re going to get them hard money loans in a minute. But nonrecourse loans to buy the rental, putting other accounts into the LLC, that’s what the lawyers are for. So Mat, I got my LLC formed. I got enough money. Maybe I’ve got an offer on a piece of real estate. What do you do next. That’s when. Excuse me. That’s when it really comes together.
Mat Sorensen: All right. Now let’s break it down into the rental, OK.
Mark Kohler: Yes, that’s what I’m saying. OK, that was me. I said rentals
Mat Sorensen: I don’t like a cough so you’re distracted.
Mark Kohler: I’m going to read this article on Britney Spears, OK? Are you
Mat Sorensen: All right? You come back here in a moment.
Mark Kohler: I’ll bring you up to speed on Britney.
Mat Sorensen: Ok, now Britney’s back.
Mark Kohler: She’s coming back. I’m on it. It’s free Britney, if you had the free Britney movement. Yes, I have. Yeah, it’s right here. I’ll pick up.
Mat Sorensen: Ok, all right. So the first thing you want to think about is you need enough money to buy the property and you want to have enough in reserves. You know, when you buy real estate in your personal name, it’s like the AC unit went out. Just if you don’t have the cash, just put on the credit card. You know, we’re talking about your IRA, though. Don’t put two hundred grand to an LLC to buy a single family rental. That’s two hundred thousand dollars. OK, you’re not be able to close a cover your closing costs. If you have a tenant out for one month, you’re not going to be able to cover the mortgage payment if you had one. Now, if you bought with cash, you wouldn’t have that. You’re not be able to cover just the operating cost of the AC unit goes out, whatever it may be. So we always like to make sure you have some extra cash on hand or in other areas. That could be another IRA’s. You can move over later if you need it. But just want to say that make sure you have additional cash. You don’t blow the whole thing to buy the property. The second thing we should probably know is you can get a non-recourse loan. So a lot of people ask, well, what if I don’t want to spend all the money? I have two hundred grand Mat, but I, I want to buy three properties, three rentals instead of instead of just one. Can I get mortgages on those properties? Yes, you can get what’s called a non-recourse loan. You can not get a regular mortgage where you sign for they run your credit, you make a personal guarantee. You’re going to need a non-recourse loan. To go get it, which requires about 30 to 40 percent down, but your IRA can get those loans and then you could have more purchasing power, you could buy more properties.
Mark Kohler: Ok, I love all that great summary. Now, as an aside, this is a good chance to point out that this last weekend we held our sixth annual directed IRA summit, the SELF-DIRECTED IRA summit. If you missed it, it’s OK. It was fully recorded. And what was fun is we went on a live location on a rental project that did not have any loans on it, which was good. So it was a rental property, bought and rehabbed with an IRA. And we did that on location during the summit and we had a whole section just dedicated to this topic. So again, this is a podcast where we’re sometimes only able to brush the surface, so please get the book go buy The summit was a couple hundred bucks to just watch almost 12 hours. Yeah,
Mat Sorensen: It was two days of amazing jam-packed information. Yeah.
Mark Kohler: With with Mat Sorensen of our Kohler. I mean, I mean, not that alone. Yeah. It’s like stand up comedy and directed IRA all at once. Yeah. Can I be so bold. Corey rolled his eyes. I saw that. I do not
Mat Sorensen: Appreciate that I didn’t see it but you know. Yeah.
Mark Kohler: Yeah I do felt that. Yeah. We need that positive energy in the studio. Jerk OK now I will. OK, so rental property, we’ve done an entire show on the podcast, even on rentals. So Mark
Mat Sorensen: And I both own rentals in retirement accounts with LLCs, LLC, that the same structure we just talked about, like we do this, I
Mark Kohler: Own a little meth lab. I mean, it’s adorable. I mean, these guys are great. Lots of bling paid with cash, Mat little more upper class now.
Mat Sorensen: A lot more suburbia. Yeah, but
Mark Kohler: Let’s think golf course, you know, a couple out there,
Mat Sorensen: City municipal golf course. Let’s not get let’s not get crazy here. The mini mini
Mark Kohler: Golf balls are flying in from everywhere. Dink, dink OK, all right.
Mat Sorensen: They’re not the country club world.
Mark Kohler: A little different. We’re talking beer and wife-beater shirts out on the course like some guys out there going just nuts. Hit the ground with this club. OK, option two, we brought up Flip’s. Now you’re going to really use the same structure to fund this thing. You’re going to have the LLC. You might pool money from multiple accounts. Now you have an LLC dedicated to Flip’s. Here’s the big hurdle you’re going to have. Now buckle up. You’ve got to bring in a new terminal, a new word. UBIT or you unrelated get fight debt, unrelated business income tax. Yeah. UBIT or unrelated business income tax or taxable income. You’ll it’s tomatoe tomato. Have a lot of people use that four letter word. It’s a four letter word that’s no fun. Now what this UBIT says is that if you’re going to go out and compete with other fixin’ flippers in your IRA and do three or more deals a year, you’re really a developer. You’re not just a weekend hack doing two or three deals a year. You’re out there competing with other people, trying to feed their families. And if you are considered a professional developer, can I say that with your IRA, you’ve got to pay tax like everybody else. You’re like, well, hold it. You guys told me I don’t have to pay tax when I do real estate with my Roth IRA or my IRA. And if I pull it out later, maybe. But if it’s traditional. But why am I paying tax? The government wants to level the playing field. Think if your IRA owns a restaurant, you’ve got to pay some tax like all the other restaurants because it’s not fair. You can charge a little less for your lunch menu, you know, lunch plate, lunch special. So same deal. So what we recommend clients that are doing flips. Don’t go crazy, do two or three a year make a great rate of return, take the profit, redeployed into a rental maybe, but don’t become a professional development company, maybe inside your retirement account. You’re now you’re talking Blocker C Corp, a whole other topic. But that’s my initial thought. What would you say about flips?
Mat Sorensen: Yeah. So keep in mind, like one of the cool things about retirement accounts buying real estate is, is when I buy property and sell it, let’s say a flip or the rental. I don’t pay tax on that. I don’t it’s not like I got a 1031 exchange and all these tiny rules to buy something new. There’s just no tax return accounts don’t pay taxes like when you have Facebook stock in your IRA and you sell it for a gain, that money just goes back in your IRA and you’ve got more money in your account. OK, now in The Roth, of course, it comes out tax free at retirement and the traditional you pay taxes, you’re pulling the money out. But it’s the same thing for real estate that it is for stocks. Now, when retirement accounts were created, the deal was if it’s investment income, you don’t pay tax when you’re selling assets, real estate, stock, whatever it is. So if I’m selling a rental or I’m getting rental income, that’s all investment income. If I’m selling a flip or two a year, that’s also investment income. But if you’re doing the three, four, definitely five or more, the IRS could look at your IRA and say this is an investment income anymore. This is business income. You’re buying and selling too many properties where this looks like inventory in a business like like Mark said, a developer. And they want to charge this tax now. So now a lot of our clients, particularly with IRAs, can’t even do more than two a year. You know, they’ve got a lot of money in your account that you can redeploy and be doing multiple properties the time you could possibly do more. But we want to keep that to just doing one or two a year in your retirement account, now if your spouse has a separate account. Cool. We get away with one or two in your spouse’s account.
Mark Kohler: I’m going to add one last thing to this just so you get your terminology down as you start to maybe consider doing flips. You’re not going to use non-recourse lending, typically because nonrecourse lending is built for a long-term hold. Yeah, what money you’re going to start looking at if you don’t have enough in your IRA is called hard money. And that’s a whole other topic. A lot of fix and flippers will use hard money, which means short term money used to do repairs and improvements and then sell and get out. And you’re going to pay a little higher interest rate and points. But it’s really there is a kind of a backstop for having to raise more capital on the front end. So you’re going to use hard money until you can get a couple of deals profit where you can self fund all your projects. So keep in mind, hard money. Also, when you’re doing fixin’ flips, you have to show a lot of restraint. You are not able to put on a cool toolbelt and play like Chip and Joanna in Fixer Upper Down in Waco. You’re you’re hiring a contractor to do the work. You’re like, oh, well, I’m going to make less money on my flip. Well, you’re not paying tax either, so chill you’ve got to play by the rules. So that’s Flip’s.
Mat Sorensen: Yep, that’s flip’s. And I think probably the hardest thing is for those of you that do flips on the personal side and are used to kind of being really super involved, you do kind of got to take a step back because I’m managing things I’m the coach on the sidelines. I don’t get to go in and play on the field. OK, I’m going to tell people what to do. And I got my clipboard. I’m making sure the craps get done. I’m calling the shots, but I don’t get to touch the ball and play. OK, that’s like your job. Yeah, and
Mark Kohler: That’s always hard for me. What I coach tee ball because I really try to jump in and.
Mat Sorensen: Oh, I know.
Mark Kohler: I just I want to play the kids. It doesn’t go well. Parents throw things, call me names, but yeah. OK, you know what, I figured out why this is a tiring podcast’s. You know why. Because normally I don’t have Mat sitting next to me. And so we have a wider angle lens and look at I have to keep sucked in here. I got to. Well, you look good. I see. I just. So if you’re watching on YouTube, I’m like I’m flexing my stomach the whole time during my podcast. It’s not easy. It’s this to work out. Yeah. Yes. But Corey, we need to do something about that.
Mat Sorensen: So your abs, not my abs, can’t help you there.
Mark Kohler: It’s like, no, no, no, no. We don’t want to fix my abs. We want to fix the camera angle. The workout plan is like Corey’s like. I know what you eat in the studio, Mark. That’s the problem. OK, all right. Fair enough. All right. Well, take the climax of the podcast for Britney here in a minute, OK?
Mat Sorensen: All right. So we want to make sure you stay on here because we got to talk about the vacation rental. Yeah. All right. So now now same LLC, structure LLC is going to own the vacation rental. You can even just be leasing the property and then basically subleasing it out for whatever short term strategy you’re doing right now in the vacation rental. One of the unique things is whether using Airbnb or VRBO, there’s going to be a lot of fees coming through. You’re going to link your LLC bank account to those portals, typically, where they will collect and pay the money and also can take out money to cover expenses and fees. You could be using a property manager close to lots of different ways to do this. Now, here’s the tricky one that everyone wants to do with the vacation rental. They want to stay at it. Oh, cool.
Mark Kohler: But whoa, someone’s going to jail. All right.
Mat Sorensen: So when we’re buying real estate with our IRA, we’re buying investment properties. We are not buying properties for personal use. It can’t be a property for your kids or any of you to stay at. This is an investment. Yeah. Now, that vacation rental always get the question. It’s like, hey, it’s a vacation rental. It’s rented fifty one weeks out of the year. And, you know, there’s a week no one is going to use it. Can I go use it Mat? No, you can’t use it. You cannot benefit from your IRAs investment it’s just going to sit there. No one’s going to use that Mat. I know, I know. It sounds stupid. Write your congressman but that’s the rules. So no personal use nor your spouse, kids, parents, anyone who’s on the prohibited list, they can’t use it.
Mark Kohler: And I know many of you are going to say, but I’m going to pay VRBO the going rate.
Mat Sorensen: Pay the same thing
Mark Kohler: Doesn’t matter. So just stay away from the vacation rental. Now, I love the vacation rental strategy. With your own personal money, why go buy a place that you only go to? You know that’s kind of funny. A lot of people buy cabins and beach houses and they think two things. One, we’re going to go all the time. Yeah, you don’t. You know, and so you want to turn these into some cash flow. And that’s why I love the great tax write off that comes with a vacation property that you can use when your personal money is into it. The other thing I find, people go, yeah, I want to buy this Cabin or Beach house. And they go, not only do I never go, but when I go, all I do is work on it. Yeah. And they’re like, it’s no fun. It’s like I go to break, take a break and all I’m doing is working on this darn thing. So I think turning your vacation property into a vacation home for yourself with your own money. And created a cash flow love, we talk about that all the time. Love it. But with your IRA, the reason why you’re doing it, you may say, well, wait, why am I doing a vacation property with my IRA? Why not just a long term rental rates of return? Think about this. Let’s say you’ve got a three bedroom, two bath in a place that most people want to visit. Let’s think right here in Idaho. I mean, it’s a traffic jam out there. I know people mats like what the hell’s going on? It’s it’s Idaho, you know, that’s come together. Yeah. So if I got a vacation, if I have a rental property, a three two three bed two bath here in this little town in Idaho, I might run it for twelve hundred a month. But if it’s a vacation property, I might get three hundred a night or two hundred a night. Now all of a sudden if I can just rent it 10 nights out of the month. Yeah I’ve got two thousand and rent versus twelve hundred. Now that’s true. You got to maybe furnish the place and there’s going to be costs with your booking agencies and all that. But a lot of times people find that if I can just rent my place half the month as a vacation rental, I’m making sometimes twice as much as a long term rental. So that’s why you do it now. There’s no UBIT, you’d have oh, you could have UDFI though.
Mat Sorensen: If you had debt now. So you can’t provide services during the stay. So, you know, it’s not like you’re this is not the bread, bed and breakfast where you’re cooking and breakfast in the morning. You know, that would that could cause UBIT. This is just rental income, short term rental income.
Mark Kohler: And the IRS has said some you go with short term rental. So it must be short term ordinary income. Nope the IRS says as long as you don’t act like a hotel. Turned down, and I love turndown service. Know it’s always nice when you come back in a room and there’s a little chocolate on your pillow, you can’t do that. This is a vacation rental. They got to deal with their dirty laundry during the stay. So but but it’s but it’s it’s passive. Yeah.
Mat Sorensen: Yeah. And you can of course clean it in between stays obviously. Yeah. Yeah. That’s that’s how the rental house is trading. That’s not going to blow your says. It’s going to ruin your tax structure. OK, so we got the rental property, of course the typical long term rental. You can collect the rents, you know, you’ll have the LLC bank account, you’re paying the bills, the leases in the LLC, the LLC owns the property. You can flip the property. Same thing. LLC is going to own the property. Just don’t work on it. All right. And be careful of how many flips you do a year. One or two. Don’t sweat it. Three or four. Talk your tax lawyer, CPA, five or more. You’re probably gonna have this tax called UBIT on all the flips you did that year. And the flip, by the way, we’re talking about that. That’s a property you buy and sell within a 12 month window. OK, so don’t do more than two of those every year without getting a consult with your CPA or tax attorney. And then the Airbnb just as a summary while Mark’s catching up on what’s going on. Britney for the Airbnb.
Mark Kohler: Yeah, you’re totally lost me. This is so fun.
Mat Sorensen: And Mark could care less what I’m saying.
Mark Kohler: I’m actually going to give you an update on Tiger Woods. Oh, new new info.
Mat Sorensen: I know this guy. So Airbnb, remember, you can’t stay there, don’t provide services during the stay that could cost you that tax issue. And I think we pretty much don’t.
Mark Kohler: Yeah. If you’re listening to the podcast, this is great. But for those watching on YouTube, you’re going to see I’m in trouble. That’s going to be like, can’t you pay attention during the podcast? But I have some important news.
Mat Sorensen: Ok, so I want to see this.
Mark Kohler: Not a lot of news with Britney, but Tiger Woods. And, you know, I feel bad I mean he is so talented. It is. It’s very interesting. His car accident, they found out that he never hit the brake in the entire accident. He was going 87 miles an hour when he went off this curve. Fricken airborne. Forty five mile an hour speed limit. He was going eighty-seven, never hit the brake. And they did find it. He was not impaired with drugs or alcohol. So why the freak are you hitting the accelerator as you get. Very interesting huh. So they said the little black box in the SUV showed that the accelerator was fully down. Well he was going off this.
Mat Sorensen: What site is this from. Well.
Mark Kohler: Reuters, the Inquirer, Reuters, I saw Reuters. Yeah, yeah, this is this is all over. Yes. So this is sounds official, pretty legit. We’ve got the Star. Ace how BIS Aces. How is Hollywood biz dotcom. No, I’m just joking. OK. Anyway, well, I hope you guys are ok. I try to keep it a little fun. I know Mat doesn’t. He tries to bore you, but I really do. I’m committed to keeping the.
Mat Sorensen: Yeah. So I was a little disappointed. You did promise to give us an update on Britney and you failed. OK, no, not one job,
Mark Kohler: But you had one job. An update on Britney Spears. OK, now this is actually
Mat Sorensen: A little later. I mean, I like Tiger, like Britney. I’m interested.
Mark Kohler: OK, who isnn’t. Now 39 and looks like she’s 29.
Mat Sorensen: I mean I see I’ve got an update on what she looks like.
Mark Kohler: Yeah. So OK for those are here for the technical portion only and have had enough of us in our stupid humor. You can leave.
Mat Sorensen: But give us a five star review. Yes. Please comment on the content.
Mark Kohler: Five five star review. Now for those who just want a little bit of an update, here’s the interesting fact. This is actually very interesting from a legal standpoint. This is a legal test. When Britney kind of went off the deep end about ten years ago, she was photographed doing some dumb stuff and she admitted she went into rehab. She she’s like, I’m out of control. I need help. The court appointed a conservator to know
Mat Sorensen: All of her finances,
Mark Kohler: All of her finances. She has no control of it. They appointed her dad. Yeah. Now, this has been going through the courts in California for a long time because the conservator law in California is very, very. Aggressive, brutal, it is hard to get out of a conservatorship because, the court says, if you needed a conservator, you better prove you are like, yeah, whatever you’re like back on the track. Britney’s still to this day admits I need a conservator. I want someone to handle my money. I just don’t want my dad. So it’s a very unique case because she’s trying to get him replaced with her boyfriend, know her care manager, Jody Montgomery, a woman. She wants Jody and her dad out. And she said recently, I am not going to perform until my dad is removed. I’m not going to make money until my dad is removed. And it’s really quite sad. She she can’t even go to Starbucks and get a drink without it being approved on a credit card and this and that her finances are locked down. So that’s why you see the free Britney movement. Let Britney be in charge of her own money again. Well, no problem. So stay tuned.
Mat Sorensen: Stay tuned.
Mark Kohler: Very interesting, Right? Yeah. So do not appoint a conservative for me, please. I think I can handle it for now. Ok, Corey. You might need one.
Mat Sorensen: Don’t shave your head and go crazy all right.
Mark Kohler: Wear underwear, do all those normal be a normal citizen?
Mat Sorensen: Yes. All right. Thanks, everybody, for tuning in to the directed IRA podcast. If you’re like some of these things went over the top of my head, we’re like 20 plus episodes in. We have probably the first five or six episodes are really the foundational ones to learn the basics on what the heck self-directing is, learn what’s called the prohibited transaction rules and just the process and procedure. And we even did another basic real estate, one back at like Episode six or seven. So feel free to jump back to learn and brush up on those the next piece of content on what was happening with Britney back then. Yes, but still interesting.
Mark Kohler: Next week is open forum. So if you’d like to submit a question. Yeah, easy, hard. There’s never a dumb question. Please, if you have a question, go to DirectedIRA.com/podcast. Now, of course, if you go to directed IRA Dotcom, you will see the link to the podcast in the education section. Please go there and submit a question and we will do our best to answer it or subscribe. Get your subscription to the magazine that will. So thanks everybody, and we’ll see you next week and open forum show.