Investment Options with a Self-Directed IRA and 401(k) (Episode 2)

Hosts and Tax Lawyers Mat Sorensen and Mark Kohler go into detail about all the investment options available when Self Directing a Retirement account. These include real estate (rental and flip), IRA/LLCs (aka checkbook control IRAs), LP and LLCs, private small business, loans and notes, cryptocurrency, and precious metals. Mat and Mark both self-direct their own retirement accounts and co-founded Directed IRA, where they have assisted thousands of clients with their self-directed accounts. Their law firm KKOS Lawyers has worked with over 10,000 self-directed IRA clients and has two decades of experience.

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Mark Kohler: [00:00:06] Welcome to this week’s episode of directed IRAs podcast with yours truly, Mark Kohler, and my amazing co-host, Mat Sorensen. I was going to flip a coin on who got to bring us in, introduce the show. And Mat said Mark, you just take it he gave me the layup. He was just like. You can have the stats. Yeah, that’s a selfless NBA player right there.

Mat Sorensen: [00:00:28] Yeah, I just I’m like John Stockton, you know, I just want to get assists. I don’t care about scoring points. It’s a team effort.

Mark Kohler: [00:00:36] Effort. Scottie Pippen is like MJ. Go ahead. You can have you can have it. You can be the greatest player ever. I’ll just be your support role for you for.

Mat Sorensen: [00:00:46] Those kids out there. You don’t know what we’re talking about. And I’m sure a lot of kids listen to the Direted IRA podcast. These are NBA players of old. This is episode two. We’re going to break this down into some digestible chunks here as we go through the podcast. We’ll be doing some open forum stuff as well, like we do on our other podcast, the Main Street business podcast, formerly known as Refresh Your Wealth Podcast.

Mat Sorensen: [00:01:17] And today, though, we’re going to talk about what your Self-direct IRA can invest into. And this could be your Solo K also or any other account is self-direct your HSA coveredell and whatever account you like, Self-direct. That’s what were going to talk about what investments can you make will go for what’s restricted. And we’re going to run through some of the common investments that people like to make that we’re seeing all day here at directed IRA where we’re handling these accounts.

Mark Kohler: [00:01:42] Yeah, and I would just add this is a simulcast of sorts. This is also being recorded.

Mat Sorensen: [00:01:50] That sounds very important.

Mark Kohler: [00:01:52] It does. Like you got the technology to simulcast whatever. But we are also recording this video version on for distribution on YouTube. So for those of you that would like to watch this on YouTube later and it’s easier if you don’t do it while you’re driving, please, it’s hard enough to keep you awake, let alone distract your eyes. So we don’t need that double liability double jeopardy. But if you catch us on YouTube watching the show, I am preparing to do a little screen share here a little bit later because I said Mat, we need really a pie chart. I’m a visual guy. I like to see. OK, what is this pie chart look like where all these investment types of assets are? But let’s get some definitions out first. Mat, when you say I think everyone needs to hear this again, that was very subtle, what Mat said. When we say what you can invest in your IRA we are using, that is a very, very broad term. IRA, it’s. Yeah, I said Mat go through the list. Yeah.

Mat Sorensen: [00:02:58] We’re using that as a broad term, as kind of the main account would be a self-directed IRA that’s the most popular and this is whether it’s a Roth IRA, a traditional IRA, a SEP IRA, a simple, doesn’t matter, but it’s got to be health savings account, a Coverdale. It could be your Solo 401k. So all these accounts fall under a similar set of rules of what you can and can’t do. And so we’re going to highlight those and also talk about what are the assets that people are buying and what are the things you should know in the process when you’re buying these certain types of popular assets. And we’ll throw some fun ones to some interesting ones that you could do with your IRA.

[00:03:37] Yeah, and we’d hope that just dropping those terms, Coverdale, HSA, 401k, we’re going to have a podcast specifically dedicated to each one of those topics. Yeah. And so if you’re going to binge on this podcast, which we hope you choose to do, we’d ask also, please give us a five-star review if you’re enjoying this. We’re trying to make this the number one informative, accurate, podcast on Self-directing in the country, we know there’s a couple others out there, but saying this humbly, we are actually doing this and standing behind our advice as an actual law firm with malpractice insurance we’re both lawyers. I’m a CPA as well. Mat has the most read and most successful book in America on this topic in its second edition, The Self-direct IRA Handbook. And I just say that that wasn’t a selfish move to self promote. That was to let you know you’re hopefully you feel you’re at the right place. So if you were to call us to go, I want to do it. Whatever we say, we stand behind as licensed professionals with malpractice insurance. So we’re just not out there, blah, blah, blah, and we try to make it fun and interesting.

Mat Sorensen: [00:04:46] And we self-direct our accounts ourselves. We do this ourselves. And I think that helps too a lot of people just like to talk about it and go sell you in a Holiday Inn every weekend on something dumb. And, you know, no we do this for our own accounts. And so we have that same mentality and want it to be practical and how do we actually build and save for retirement? Because for us the goal is we just want the biggest account. At the end of the day, we have if we want our account to be as big as possible. So. All right. Well, let’s dive in. Let me just kind of hit what you can’t do, that’s not that shouldn’t take that long.

Mark Kohler: [00:05:29] You’re going to get in. And one thing let me tell everybody too, of course, are one of our co-sponsors in a firm in company That Mat and I are both officers in is the Directed IRA by Directed Trust Company. When we used to ask each other maybe five, 10 years ago, I wonder what most self-direct investments are. We didn’t know. We didn’t have our own trust company with thousands of accounts. Now we do. And so when I go Mat tell me the spreadsheet you share with me what we got Mat’s got it in a client confidentiality client, confidential spreadsheet, attorney, attorney privilege, a document that we’re not going to put up on the web here. I’m trying to get the words out, but I’m going to we’re going to get this information out throughout the show and I’m going to put it in a pie chart for you. So this is extremely accurate based on a cross-section of our accounts at directed IRA. And so and we’re going to do the most common to the most complex. But I like what Mat’s saying first, what can’t we invest in? All right.

Mat Sorensen: [00:06:36] So, OK, this is this is quite easy, actually. And the good news is there’s not a lot of things you can address. And if that’s not on the list of the way IRAs work is, you can invest in anything you want as long as it’s not restricted or as long as it constitutes a prohibited transaction. If we’re going to touch on a prohibited transaction briefly and we’re going into the next podcast is going to dive deep into that.

Mark Kohler: [00:06:59] Mat makes an interesting nuance. He says you can invest in anything as long as you don’t screw up the process. That’s a separate topic, right? Some people say you can’t invest in that. Oh, you can if you do it right. So that’s a really important distinction Mat you make. Yeah.

Mat Sorensen: [00:07:16] So here are the three things that are restricted in the code. This is what by law you cannot own with the retirement account. IRA, Solok, whatever we’re talking about.

Mat Sorensen: [00:07:26] 1. Life insurance, OK, can’t do it, you just can’t buy it. I don’t think anyone was listening to the podcast want to buy life insurance with their self-direct IRAs off the list. Next one. 2. S corporation stock. Now, s corporation stock is not that it’s restricted IRAs, it’s really that IRAs don’t qualify as an S corporation shareholder under S corporation tax. So S-CORPs off the table now we can do LLC, C-Corps, limited partnership all day long. We’ll have another podcast on IRA/LLC, with your checkbook IRAs and we’ll talk about LLCs and OPs today. So just the S. Corp is the only entity type of stock or units you can’t buy. 3. The last one is collectibles. Now, collectibles was one you could buy at the beginning, but people abused it so much that Congress had to write a new law and say you can’t invest in collectibles.

Mark Kohler: [00:08:23] Which brings us to an example that has been coined and used over and over again on major news networks for years now due to Mat Sorensen. Why can I not invest in a wine collection?

Mat Sorensen: [00:08:39] This is the old joke. This is a good one because those wine collections turned into bottle collections. That was so good in its delivery. That’s good. What’s the.

Mark Kohler: [00:08:55] That’s like Jim Gaffigan and Hot Pockets. Yeah. We’re Brian Regan in the emergency room. Mat Sorensen and in a bottle collection. I mean, it’s right up there. Yeah, I’ve seen other people use it. It’s OK. It’s OK now. They stole it.

Mat Sorensen: [00:09:09] Yeah, it’s all right. But it’s true. I mean, there was abuse people were buying collectible cars driving them out on the road. I had a client that art and he still has it because he bought it pre the rules like way back in the in the 70s or 80s. And a key thing that’s coming over into an IRA, they still own this art in it it’s interesting. But you can’t buy those assets, OK? Those are restricted collectibles. The one that really comes up that you need to know about is if you want to buy precious metals. We have a lot of clients to buy precious metals, I would probably say 10% of our accounts, maybe self-direct investors are buying precious metals like actual physical gold, silver, platinum, and palladium. Those are the only four metals you can buy with an IRA, if you like. Well can I buy Diamonds with an IRA? No.

Mark Kohler: [00:10:01] I told my wife that zirconium was extremely valuable. Yeah. And I can’t invest in a zirconium?

Mat Sorensen: [00:10:09] No you can’t buy it with your IRA no bronze either. You know, if you want to buy that bronze medal, can’t buy the bronze. Got to be Gold or silver, platinum and palladium.

Mark Kohler: [00:10:20] That’s because third place is.

Mat Sorensen: [00:10:22] Yeah. It’s not good enough for your IRA.

Mark Kohler: [00:10:24] It’s not good enough. It’s not good enough. So now also there’s another thing now I wanted to make a distinction here. You can’t invest in S-CORP stock. Doesn’t don’t don’t take that is I can’t invest in a business that would typically be an S corp. It’s not the business inside the S-CORP we’re having a problem with. It’s the structure of the S-Corp which brings us to the businesses inside an entity, whether it’s a C corporate or LLC. The IRS throws out this blanket statement that you cannot invest in something that’s illegal because you’ll say, well, I’ve got this LLC, I set up an X, Y, Z, wherever, and it does prostitution. Well, that’s illegal and we won’t allow that.

Mat Sorensen: [00:11:05] Thank you for that attorney client information now.

Mark Kohler: [00:11:08] But just if any of you were wondering, it’s illegal.

Mat Sorensen: [00:11:11] I mean, if they had a brothel that a brothel in Nevada apparently it’s legal there.

Mark Kohler: [00:11:16] Yes, that’s true. The Mustang Ranch or whatever it’s called, publicly traded C Corp. But here’s the thing that is kind of on the bubble, and that is marijuana and the sale of it cannabis. So it may be legal at the state level, but it’s not legal at the federal level. So that’s and that’s a very common one. Many people are investing in that. So Mat, where do we draw the line at directed IRA with most custodians?

Mat Sorensen: [00:11:43] So what we’ve done is while it’s still federally a controlled substance, technically it’d be a crime for your to own it because your IRA is participating. It could be based racketeering, criminal enterprise, if you think about it. And so we don’t want your IRA or our accounts owning ownership in a company that is selling what is a federally controlled substance and could be a crime. So you can’t do that with your IRA. What we have done is clients IRAs have owned real estate that is leased to a dispensary or that’s a grower or farming or whatever it is. And so if they’re owning the land. That’s OK, because their ownership interest in real property, they may be leasing to another party that does separate. That would be OK. But you can’t own a share in the company, LLC or corporation that actually owns and sells the, you know.

Mark Kohler: [00:12:40] Now, some you may think this is funny, but the example I’m going to give here, because we’re going to start with the basics, too. But I had a client yesterday, Mat sent me a text. I don’t want to say his name here on the show. He’s a regular listener. Sent me a picture of his new yacht he bought down in Miami. Now, this is not a yacht that he’s going to use. He bought it with an LLC. And there’s a large market down there of people that visit Florida that would like to rent a yacht for an evening, a weekend or a 10 day period. So he’s got this yacht and a rental pool just like an Airbnb, and it’s already projected cash flow this year. Now, when he first told me he was going to buy this, I was trying to talk him into doing it with his 401k. Regrettably, we were just one year of contribution away from probably getting it put together where he could do it. He just didn’t have enough money in his retirement account and he didn’t want to go get a loan. He wanted to make sure this thing really cash flowed. But let’s say we bought that with the IRA, which we’re going to come to some of these items like a boat. Could his boat go out into the ocean, down to South America, pick up pot and bring it back and sell it in Florida? No, because it is running drugs. Now, the state of Florida may say that’s fine, you’re transporting an illegal substance. We don’t care. But for federal law, his IRA could not own a boat. And we have clients to buy planes with their IRAs or 401k’s. So if your plane was going to fly out of Southern California down to some strip in Mexico, pick up your growth of marijuana and bring it back and sell it in California. California has no problem with that. Now, the feds do.

Mat Sorensen: [00:14:21] And I think Mark’s been binging on narcos or some drug shows on Netflix right now.

Mark Kohler: [00:14:28] The real question is, could your IRA invest in the car wash with Skyler? Yeah, Breaking Bad. Probably not. Right, because it’s illegal. They were laundering money. Yeah, I know. It’s funny to use these examples, but it’s true.

Mat Sorensen: [00:14:41] We’ve had clients by carwashes with their self-direct IRAs. Most of those clients, by the way, on these assets, the yacht, the plane, the car wash, OK, they’re almost always using an LLC, an IRA/LLC, which we’ll talk about, and one of the next upcoming podcasts. That’s where you’re rather than your IRA buying the yacht itself or the car wash itself. The IRA owns an LLC 100% and puts cash in at the LLC in turn goes and buys the car wash or buys the plane or yacht and then leases it out. Now remember yachts and the plane, you cannot have personal use of that. We’re talking about here, whether it’s these assets or real property, you have to buy assets for investment purposes. You’re not having personal use. We’re not talking about buying real estate you live at or stay at. These are investment assets you’re leasing out.

Mark Kohler: [00:15:31] Now, that’s a little teaser Mat’s giving you regarding prohibited transactions, which if you’re bingeing on the podcast, you’re going to want to watch that one next. So I know I’m went a little deep with some unique ideas, but I have an open mind. It’s fun. I like creative, I think creative CPA in the country sometimes that.

Mat Sorensen: [00:15:50] Yeah, and we see that. I mean, I’ve reviewed probably every other week I’m reviewing a deal that has cannabis involved. And what’s the ownership stake? Are they owning the cannabis and or the company or not. It’s very popular. It’s a fast growing industry and apparently there’s high profits. You can make a lot of green there, you know.

Mark Kohler: [00:16:06] Oh, I like that. That’s good. Good. You can get some high profits. All right.

Mat Sorensen: [00:16:13] OK, let’s you want to hit some let’s just go through some of the common ones. Yeah.

Mark Kohler: [00:16:18] Tell us no one I asked about before the show started. What is the number one asset. That people buy with their retirement accounts?

Mat Sorensen: [00:16:18] Real estate, baby, and if you think about it, what is the one of the most? It probably is the number one asset that has created American wealth. Yeah, it is going to be its real estate. It might be small business, but we’ll talk about that next. Private companies IRAs can invest in those, too. But real estate and these are rental properties in general. It could be raw land though you can buy.

Mark Kohler: [00:16:55] I have a question for you. Let me ask you this, because as for the pie chart that we’re going to reveal later here on the podcast, and maybe we’ll even put it up on the site. Main Street, I’m sorry, directored IRA podcast page is this pie chart might be fun. Let me ask you, Mat out of one hundred accounts, out of a thousand accounts. How many are real estate? Just real estate as a whole.

Mat Sorensen: [00:17:19] You have to let me come back. I told you I could run a report on this and I didn’t do that yet.

Mark Kohler: [00:17:22] I know. Give me a rough number now. Give me a rough number, 60.

Mat Sorensen: [00:17:25] I’ll give you an exact number. OK, you have to let me like you got to give an example here so I can.

Mark Kohler: [00:17:31] OK, so here’s what I was going to say about real estate as Mat is digging this up and then I’m just going to we’re going to go off the cuff on this on this part. It could be raw land. It could be single-family homes. It could be commercial. It could be duplexes, low-income housing. So when we say real estate, it could be any of those. I just had a conference with a client three hours ago that bought a mobile home in their retirement account. So any of that is considered real estate. And then I did ask Mat earlier also how many of the people that did buy real estate just bought them, bought it in the name of the IRA and versus an LLC. And the far, far majority said 80% used an LLC because it’s easier go closing. You can control the management of it, the cash flow. You don’t have to call the directed IRA hotline every time you want to hire a pest control service or collect rent, you have the LLC and you can be the manager of that LLC can’t yourself. That’s next podcast. We’ll talk about that. But you can control the LLC, write the checks, pay the bills, and that is a way of or a form of owning the real estate. Remember, that’s different. So the asset that we’re talking about first is real estate and Mat drumroll, do we have it? Close, he’s written reports Mat, you know, he’s got this engineering side to him. I love it. He won’t just give us a number.He’s going to make it accurate. We’re going to do it right now. Ok, well, we’re on the real estate topic. Hey, I’m a lawyer. I can talk forever here. So it gives me the points that goes run with it.

Mark Kohler: [00:19:12] Another example this is just to play with this real estate topic, my health savings account. Eight years ago, I bought a low-income housing property in Elgin, Illinois, essentially a suburb of Illinois. It was a low income housing area with a Section 8 federally guaranteed rent payment property. And it’s a little old, a little grandma there. And I got seller financing. We’re going to talk to have we have other podcasts about debt using leverage. But I got seller financing. I put down $4,000 on a $40,000 property. I got a $36,000 dollar note in the name of my IRA. Wasn’t even on my credit, topic for another show, but I bought this little low-income housing property and the cash goes in to my Health Savings Accounts LLC. So my health savings account created an LLC that owns the property. So the underlying asset is real estate. But I used an LLC to complete the transaction and whenever money comes out of this project, it goes to the LLC and I can take money out of the LLC for any medical expense, any time the LLC doesn’t even file a tax return. Done, hidden forever, legitimately, honestly, and so that that’s a huge point there. Mat, it looks like you’ve got a number for us.

Mat Sorensen: [00:20:39] Ok, what do you want to know? You want to know how much is real estate? How much is what do you want?

Mark Kohler: [00:20:45] Well, I was going to say real estate. Can you break it into types of real estate?

Mat Sorensen: [00:20:49] Well, I can. Using an IRA LLC or not, because some assets are IRA/LLC.

Mark Kohler: [00:20:52] Let’s say, real estate without an LLC?

Mat Sorensen: [00:20:55] That’s about at about 5% of the accounts directly owning real property for the IRA or the retirement accounts on file directly.

Mark Kohler: [00:21:08] Ok, real estate with LLC.

Mat Sorensen: [00:21:11] We’re talking like we’re talking about one-third of accounts or one fourth, one fourth. Yeah, I’m 20 to 30 percent.

Mark Kohler: [00:21:24] Ok, so I’m going to go right in the middle. 27.5, and then you said how many was without an LLC? Five percent.

Mat Sorensen: [00:21:33] Correct.

Mark Kohler: [00:21:34] Ok. All right. OK, we’re going to keep doing this good. All right. Now, Mat, the question I have for you is just while we’re on this, just for two seconds. Well, do you see people buying more cash flow property than property that’s kind of held for appreciation.

Mat Sorensen: [00:21:54] Yeah, for sure, like 95% of people are buying rental property. Well, that’s not true, actually. Let me go back. You brought whammed is pretty, that’s like the one in one hundred. But a lot of people are flipping still, a lot of people are buying properties that are flipping, so it’s not like a buy and hold, it’s a short term deal. So that’s maybe 20% of people are flipping. The vast majority, though, is really plain vanilla, single-family rentals. And that’s I’m talking about here like they’ve got an IRA/LLC that’s buying a single-family rental or they’ve got they bought real estate directly in IRA’s name. So let’s walk through let’s go through how you do it. So let me break this down, because I think it’s interesting, the stats, but I want to make sure people understand what the heck how you do it. Like you set up an account, how I do this Mat?

Mark Kohler: [00:22:49] Ok, I thought you want to do we’re going to do a full show on the steps, but you just want to summarize it quickly so that at least people aren’t stressed out.

Mat Sorensen: [00:22:58] Yeah, I just want to let people know, like if you’re buying real estate in your IRA, the first thing you got to know is, if this is my IRA Mat Sorensen’s IRA. Mat Sorensen is not buying the property. Mat Sorensen on the purchase contract. All right. Mat Sorensen is not cut an earnest money check. The buyer is directed trust company FBO Mat Sorensen IRA. The earnest money comes from the IRA or whatever your account is that’s involved here. If you’re using an LLC, your IRA would have set up the IRA LLC and invested the money. But the first principle is the retirement account is buying the asset. It’s putting the money in. It’s going to receive the income, it’s going to pay the expenses. You are personally only involved from a step back is directing the account, putting the account on as the purchasing the asset, telling us how to spend the money or whoever your IRA custodian is, you know, do this, do that, find this document, process this. You’re instructing them what to do. But everything is being done in the name of your IRA. Now, if you have an IRA/LLC your IRA would have already put cash into the LLC and now you’re managing the LLC, doing those things and assets are in the name of the LLC. So keep that in mind is when you’re out investing, buying real estate. Everything’s done in the name of the IRA. Now, when you manage the real estate. Don’t take a salary, don’t take compensation if you’re a real estate agent, when you buy it, don’t take a commission. Those all cause these things called prohibited transactions with the IRA. If you’re going to fix the property, there’s a repair that needs to happen. The IRA is going to pay someone to fix it. So you’re going to take a step back.

Mark Kohler: [00:24:41] Ok, so those are teasers, folks, because we do whole shows on that. Again, we’re just talking about the most common assets and what you can and cannot put in any of these retirement accounts 401k’s to IRAs, to HSAs. So I’ve got real estate without an LLC rental, real estate with an LLC and flipping real estate with or without an LLC.

Mat Sorensen: [00:25:02] Ok, everybody, that Flip’s does an LLC. If you’re going to flip a property, we’ve never done one. Recognize that put we’re always going to do an LLC.

Mark Kohler: [00:25:09] Ok, now I asked you what was second after real estate and I was kind of interested to hear what you said that was. OK, go ahead, drumroll.

Mat Sorensen: [00:25:17] Actually, I’m looking at the numbers exactly right now it is private companies, limited partnerships C corporations for just business. Yes, business. I might be investing in a limited partnership that owns an apartment building, you know, or maybe it’s a private hedge fund. Maybe it’s a startup company. Yesterday I gave a presentation to Tech Coast Angel, people making Angel Investments and start with their IRAs. So that’s actually a very big asset class for us, that the top percentage of that, that’s probably 20 percent of our assets, 25.

Mark Kohler: [00:25:56] Ok, I’ll go 25. OK, so business now and again. I would say business would include clients that are doing in an Airbnb with a yacht or a plane or a restaurant or a delivery service or a cement company or a landscaping company. You think of a company, there’s been an IRA in history that’s been a part owner, very, very common in your brother in law starting a business and come says to you, hey, I’d like to start a carpet installation company. You’d say how much you need me, how much? $30,000. And I’ll give you 20% of the company. But I need this $30,000. You can do with your IRA. Yeah. Oh, that’s very kind. So I’m just going to call that small business.

Mat Sorensen: [00:26:41] Yeah. Know your brother’s company could be an escort, but he can do an LLC or C-Corp of course. Yep. Yep. And remember brother siblings are not primitive people for the transaction is pretty good in that example there. But a lot of these frankly are funds, you know, like there that there the apartment building fund, it’s the hedge fund. We’ve got a number of clients and there are the tech startups. So what those are generally when you invest in those, you can have company documents and you’ve got kind of a fund style document which has what’s called a subscription agreement that you’re going to fill out. And it’s going to say, my IRAs the buyer again goes back to this concept. You’re not buying this dang subscription into this limited partnership with a C-corp for this private fund or this private company. Your IRA is so you’re the buyer is your IRA. One thing it’s important to know to some of those investments, not all of them, but some of them make you be an accredited investor. But if are personally accredited investor, because you’ve got a million dollar net worth, two hundred thousand income single three and a thousand, your personal accredited investor, your IRA qualifies as an accredited investor. And so but those are private company, private funds.

Mark Kohler: [00:27:56] OK, small business. Private company. I’ll put that private company now. I want to report this live on the show. I just got a text from Heyden in our company. They just had a baby boy and so excited. Eight pounds, 15 ounces, Wow. That’s a big that’s a big boy. And we got a picture here of the camera. But just this little little babies are so cute, you know, and they smell it. That’s like, what is that smell? You know, it’s it’s just it’s been after they’ve done nothing wrong, they’re just perfect. Yeah. So until they blow out their diaper and then you’re like and he named it Mark and Mat Mark and Mat just like Mark Mat. What’s the middle name and first name. No I did not. I was teasing him. You’re going to name it Mark Matthew Gibi. I love it. That’s a great Matthew Mark. I would be happy with middle name right there. Yeah, I could, I could live with the middle name anyway. That word. Congratulations to him. All right. Now, small business, private company. What’s next? But that’s where the N-word comes in. Notes, right? Did you say.

Mat Sorensen: [00:29:07] Yep. Notes and this could be secured like you’re letting on real property and you’ve got a mortgage or deed of trust securing it or even unsecured for a little more risky. And so we’ve got secured notes and unsecured notes.

Mark Kohler: [00:29:21] Let’s just say notes. How much what’s the percentage of our accounts to do lend?

Mat Sorensen: [00:29:24] It’s going to be about 10% in total dollars,

Mark Kohler: [00:29:34] OK, we’ve got 20 more percent to allocate here. Yep, this is good. Now, precious metals. Was that now? No, it’s people just plain notes. Yeah. OK, go ahead.

Mat Sorensen: [00:29:45] So when you’re doing a note, you’re playing the bank here. So obviously you’re going to do your due diligence like the bank does and whoever you’re lending to. Right. And particularly if it’s unsecured, you might want to get a personal guarantee of belonging to a company unsecured of the owner. You got to be careful here. You spent years building this money in your retirement account. Don’t throw it away by loaning someone money. Security is great because you’re a lein on the property. Now, the lender on the note, again, is directed Trust Company FBO, whatever your account is or whatever your company, Mark Kohler IRAs. He loans money. And that’s essentially it, you’re going to payback terms, that’s got to be all outlined in the note, like just kind of regular documents generally have a title or escrow company involved that’s going to escrow the money, particularly for a secure note for an unsecured note you might not, but you could. So and then, of course, the payments are coming back to your IRA. You know, now they could mail you the check. Some people are like, well, I want to get the no payments is going to be written to my IRA, but can they mail it to me and then I’ll forward it to you guys because I just want to make sure the payments are happening. That’s OK. You can also use a third-party payment processor. There’s a lot out there that our clients have used we can help with. If you want a third party processor that kind of does your collection and we’ll send them a statement and a bill every month and tell them to pay your note. So so notes. Very common and your bank or sorry, your IRA is basically playing bank, you’re the lender.

Mark Kohler: [00:31:15] Ok. All right. Now after notes would it be precious metals. I’m guessing I would say precious metals. So I prefer not to be about another 10%.

Mat Sorensen: [00:31:28] Not yet. It’s about five to seven.

Mark Kohler: [00:31:35] Oh, OK. I’m going to put 7%. OK, precious metals. Now, Mat mentioned this a little earlier. This is one where you can’t just buy gold bars and have them sitting in a drawer or under the kitchen sink and hide them around your house. You have to go through a dealer that has a repository for the. Is that the repository depository repository? OK, so in Goldfinger they have the depository at Fort with a very popular woman’s name that was the I won’t bring that up. My wife hates that movie simply because of what’s her name galore. Anyway, that was a depository. So you have to have a depository to own your gold and hold it for you to store it. Correct. You can you could literally drive there, walk in and go. I want to see my gold and you can see it.

Mat Sorensen: [00:32:26] Yeah, absolutely. And we’ve had lots of clients with different dealers. And you’ve got to store it, like Mark said, in their storage, because we’re storing it. They’ve got to be properly licensed to store the metal because precious metals have rules about what asset, what metals you can buy, remember? And then there’s also metals that there’s also rules with respect to how the stored in the IRS came out and said you cannot do home storage, OK, you can not stored at your home with an IRA, even if you using an IRA/LLC you can not do home storage. You know, those are buy precious metals with an IRA LLC, you could use a safety deposit box at a bank in the LLC name, but you cannot do the storage of your mouths. I know people that love precious metals. They like them because it’s so tangible and it’s cool to have at a dinner party. This gold bar I got here, it’s in my own right now. But you can’t copy store.

Mark Kohler: [00:33:21] Yeah, I like now. This is a great opportunity. I’ve been wanting to do this because if you had a depository like this with like a little ID number, you could have it embedded maybe under your skin, as in Jason Bourne. And then if you had to, you could go to the depository. And get your gold. I mean, that would be really pretty cool.

Mat Sorensen: [00:33:45] Any good like that. I’ve always wanted like a safety deposit box with, like a gun in it, you know, a couple of passports, cash and like a gold bar. I think I like the right mix. That’s like the combo package I would pick.

Mark Kohler: [00:33:59] You know, that’s on my bucket list. I just got to do I need a safe deposit box. Would you say a gun.

Mat Sorensen: [00:34:04] A Gun, a passport, a passport and some, you know, in the name of like Peter Lemon Jello or something, know Ted Nugent and some cash wad cash, maybe some maybe some foreign currency, some euros and a gold bar.

Mark Kohler: [00:34:22] I’d love to. OK, now after currency, sorry. After precious metals. Now we get to currency and I say currency because that’s going to bring in cryptocurrency and some of these digital currencies, right.

Mat Sorensen: [00:34:33] Yeah. Now crypto can creep into somebody else’s. I would say that’s about 2% of accounts of currency. Cryptocurrency might be a little more, might be three to five. But it’s hard to say because they’re blended in the LLCs. Most clients buying crypto well, all of our clients buying crypto are using an IRA/LLC. So that’s another asset you can buy bitcoin. I’ve got a movie, a video movie. I got the movie.

Mark Kohler: [00:35:00] It’s on IMDB.

Mat Sorensen: [00:35:01] Yeah. Yeah, you can find it. It’s on the outside from Bets. Yeah. Bitcoin. So but you can buy cryptocurrency. I actually own some crypto in my LLC.

Mark Kohler: [00:35:12] Don’t hold that against Mat he’s not crazy. And you never know, it’s like playing roulette wheel on zero once in a while, you know, you just never know when it’s going to hit.

Mat Sorensen: [00:35:22] Awesome thing was, I bought it when all of our clients were asking, how do you do this? Can you do it? And I’m like, I don’t know, I’ll try it. Let me throw five grand in it. And then I bought it and it kept going up, so I kept buying more. I was smart, I cashed out to get my money back and I just let the rest ride when it really snapped.

Mat Sorensen: [00:35:38] Mat won’t tell you on the show how much you made, but it didn’t make you unhappy. It was pretty good. So but the hard thing is like,

Mark Kohler: [00:35:49] How is your Iraqi dinar doing now?

Mat Sorensen: [00:35:52] Yeah, I don’t know anything good. Yeah, my ex in-laws gave me some for Christmas one year and they told me, you’re welcome, you’re going to be a billionaire one day I was like dang it. We’ve got it’s not my IRA OK.

Mark Kohler: [00:36:09] We’ve got 19% of all accounts still unaccounted for.

Mat Sorensen: [00:36:15] OK, there’s a lot of miscellaneous. OK, give me some miscellaneous assets out there and collect some tax liens.

Mark Kohler: [00:36:24] Ok, going to give me a number three or four percent.

Mat Sorensen: [00:36:28] I would probably say one. We’ve got convertible notes, actually a different category than the notes I gave you. Convertible notes are a lot of people investing into companies. This is probably another one percent. So they’re investing in companies where they can convert it to stocks. So you can do that. You can have your IRA loan money to a company. And this is very popular in the startup world where you’re the lender, but you have the right to convert your loan to the company into equity, into stock and convertible notes. We have. Actually, we have another category of private placements. That I didn’t include in there, so this would be your typical funds, and that’s about. That’s about 4%, 5%, actually. I didn’t give you that. And that’s in addition to the limited partnership stuff I gave you earlier.

Mark Kohler: [00:37:29] And so it’s a limited partnership in what, what type, it’s just that we thought it’s a fund, private plan. Ok, funds. OK, so. So I’m going to say, OK, small business, here’s our number so far. Real estate 33% of all types of real estate now. Small business, private company. 25%, notes 10%. Precious metal 7%, currency, including cryptocurrency and all buying any sort of currency worldwide, 2% precious metals is 5%. 5% currency, 2% tax leans 1%, convertible notes 1%, and then I’m going to put this one back up higher, funds. So kind of like private.

Mat Sorensen: [00:38:20] Yeah, when you say currency, I presume we’re talking the foreign currency, that’s probably like half a percent if even that that’s not very big. OK, there’s a lot of clients invested in it, but they don’t invest large amounts. So it’s a relatively smaller amount total. What else the other one, that’s another category is it’s a separate little category here at about 2%, I would say, is notes that are kind of more unique, like they bought a judgment maybe or they bought a default could note. What do they call there’s a name for them to kind of like notes in default.

Mark Kohler: [00:39:10] Ok, well, it’ll come to you, but I was going to throw this out to is what about equipment, equipment leasing equipment like that are buying. I’ve got a client with some IRAs that have bought equipment in Hollywood they use on production sets and they rent that equipment out.

Mat Sorensen: [00:39:25] Most of those clients are going to use an LLC because to buy the equipment and the pay to get it repaired and lease it out on an ongoing basis. You’re generally going to be those are probably in some of the LLC category. And I know it’s hard for me to say in there, but we have we have another asset, just the other asset. That could be lots of different things. You know, this could be like the Super Bowl tickets that you bought and sell for a profit.

Mark Kohler: [00:39:52] This can be a cattle ranch. Yeah, livestock. Yeah, we’ve had that on. Ok, so what I put here was LLCs with all sorts of stuff. Yeah. Go for it. Now this gets us to 100%. I’m going to share this on my screen. Actually I can’t because Corey, you got the control of it here. I’m going to email this over to you. And then you can put it on the screen types of Self-directed IRA accounts, so I’ll go through the list now, just so everybody for those that are listening via OK podcast, real estate 33% small business. 25% notes, 10% precious metals, 5% limited partnership funds or companies, 5% currency, 2% defaulted notes 2% tax liens one percent convertible notes 1% and then 16% of everything under the sun. Just kind of LLCs with all sorts of stuff. So should we pour more in real estate? I think real estate is higher than 33%.

Mat Sorensen: [00:41:07] Well, LLC is the hard thing is that we have a big IRA/LLC category, so I don’t know how to break that out as much. That’s I’m just kind of guesstimating that and is trying to fill in that. There’s real estate, some of the real estate flip, some of it’s rentals. So but but you can see as we can just list these categories, what’s kind of popular, what are people doing? What are things you thought you could you can invest in You never knew. And so there’s there’s lots of investment opportunities out there. And I don’t think anybody should go to something that’s just popular. Just go to what you know, that’s the thing about Self-direct is invest in what you know, find the assets that you have a competitive advantage in in the marketplace rather than just picking a mutual fund or guessing in the stock market. Invest in the things that you know, that you spend your time on, that you have some expertise or is willing to learn. And that’s where we see clients actually have success.

Mark Kohler: [00:42:02] And OK, I want to I love it and I want to throw I just came to me what I wanted to say earlier, and this is where I think. There’s a discussion that has to be had because there’s people out there giving workshops saying you should never buy this type of asset in your retirement account. Now, those people saying things like that usually have an agenda of trying to sell you something different, but I would not say they’re out there as a watchdog for you. They’re self-serving, some sort of product they’re trying to sell. The one I hear very that I hear commonly is, well, don’t buy rental real estate in your IRA because you don’t get the depreciation. And I that really rubs me wrong, because they’re using misdirection now, is it true that the depreciation is not going to flow to you personally when your IRA buys a rental, correct? That’s absolutely right. But did you buy the rental for depreciation? No. Yeah. Your IRA buy this rental because it’s getting a better, better rate of return than the freaking ETF or mutual fund you had in there last week. I was giving a presentation earlier this week and there was a room probably of 35 people. And I said, who has some exchange-traded funds or mutual funds in a trading account? A third of the room raised their hand, said, great, what’s your average return and what would? And there were all seven. I said, what’s the best rate of return that would you just be getting nine percent? I said, Great, how many of you own rental real estate in the room? Another third or fourth of the room? And I said, OK, on a rental property, someone give me an example. And we started going through the cash flow, the tax benefits, everything. And even without depreciate appreciation. Yeah, with the appreciation and the tax benefits to pay down on the mortgage, I have my four quadrants of rental real estate I teach on YouTube, but people were averaging 20% or better with the same $10,000 investment. So are you going to take your ten grand and go partner with someone on a little rental property or are you going to take the 10 grand buy an ETF? It doesn’t matter that it’s real estate persay. What matters is what’s your best rate of return? For some reason, you know, live Stockton, you live in Texas and you can buy cattle like no one’s business. And you’re going to buy 50 head of steers and have them raised on a third party farm that you’re not doing the work. Can you do that? Yes. Do we have clients do that? Yes. Do they have some inside knowledge on the best cattle to buy? Certainly. And they take that same $10,000 and double it.

Mat Sorensen: [00:44:53] Double it, yeah, and I, I always on the weekend, you get that a lot, there’s some other videos out there about don’t buy real estate in your IRA and they’re saying because you can’t take depreciation on it. Well, IRI’s don’t pay taxes. OK, what do I need depreciation for if I don’t pay taxes? What am I going to do, an appreciation for the IRA is not going to pay tax? I just don’t get why that why I would want that, so remember, when you’re making the cash flow on the rental income, the capital gain, when you sell it, you’re not being taxed, building up tax-deferred if it’s a traditional and totally tax-free in the Roth.

Mat Sorensen: [00:45:34] All right. Well, let’s let’s wrap up for today. We have the next podcast again is going to be on prohibited transactions and then we’re going to hit IRA/LLs or Checkbook Control IRA. So we’re trying to drip this out, hopefully make it digestible. For those of you that are newer and for those of you that have already made Self-directed investments to kind of brush up on these rules and maybe hear some things you haven’t thought of to do in your own account yet.

Mark Kohler: [00:46:00] Ok. And for those on YouTube, we’re going to after we when you’re doing our final mixer of the video version of this, we’re going to put that diagram up there of the pie chart showing the allocation of assets in America from a pretty valid source here, what our mix of assets are. So hopefully it gives you some great ideas. That’s what this show’s about. We want you to feel like you’re in control of your retirement, not someone driving the car telling you what you can and can’t do, like a child under age 12. This is your retirement account we can invest in and what you know best. So that’s what we’re about. You keep coming back. We’ll keep bringing you the goods. Mat. Thank you for being an awesome co-host. You’re right.

Mat Sorensen: [00:46:46] My pleasure. Always a good time here with Mark Kohler.

Mark Kohler: [00:46:49] All right, everybody. Talk to you next week.

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