Loaning money to your IRA/401(k) May 20, 2008
Posted by Jeff Nabers in : real estate, Self Directed IRA Solo 401k , add a commentDo you have an IRA/401k-owned investment property that has a mortgage and negative cash flow?
Something I’ve been running into lately is Self Directed plan investors who speculatively bought a house or condo in previously hot markets (think Vegas, Florida, Phoenix, etc). Some of these areas have experienced declining values and declining rental income for short term rental properties.
If your plan (IRA or 401k) bought a house & obtained a non-recourse mortgage loan qualified based on short term rental income that has declined, you probably have negative cash flow. How can you avoid foreclosure? Loan money to your IRA/401k.
Loaning money to your IRA or 401k
A little known (more…)
The Roth Assumption May 15, 2008
Posted by Jeff Nabers in : Money, Self Directed IRA Solo 401k , add a commentWe all have that friend who is financially irresponsible. You know, they have a new cell phone every time one comes out. They lease a brand new car every 2 years. Their credit cards are maxed out. And they don’t really have a game plan on how to pay for the stuff they have. The best I can tell is that our government is kind of like that. If you look at the timeline, all major tax changes result in increased taxation. Let’s just look at what happened with Social Security:
- In 1935, the Social Security Act was passed, and the Social Security benefits systems was created. Benefits were not to be taxed.
- In 1937, FICA began payroll taxes of 2% in order to fund the payout of SS benefits.
- In 1950, payroll taxes were raised to 3% in order to fund the payout of SS benefits.
- In 1956, payroll taxes were raised to 4% in order to fund the payout of SS benefits.
- In 1972, payroll taxes were raised to 9.2% in order to fund the payout of SS benefits.
- In 1977, payroll taxes were raised to 9.9% in order to fund the payout of SS benefits.
- In 1983, payroll taxes were raised to 10.8% in order to fund the payout of SS benefits.
- Starting in 1984, up to 50% of an individual’s or couple’s Social Security benefits were (more…)
Checkbook Control 2.0 (for the self employed) May 13, 2008
Posted by Jeff Nabers in : Self Directed IRA Solo 401k , 28commentsWith tens of thousands of self directed IRA investors utilizing LLC structures to enjoy “checkbook control” authority of their self directed IRA investments, this post may serve as great news for those who aim to follow suit.
Solo 401(k) retirement plans can grant direct checkbook control without the use of an LLC or custodian.
The concept of custodian comes from Internal Revenue Code Section 408(a)(2) and is defined in Section 408(n). This entire IRC section 408 is devoted to Individual Retirement Accounts, or IRAs. The code basically explains that an IRA is normally a trust, and the trustee must be a bank. It then defines bank as a bank, trust company, or any company specifically approved by the IRS. This capacity of trustee to an IRA is known as “custodian”. This trustee role is simply that of investing the plan as directed by the accountholder.
A Solo 401(k) plan is a type of 401(k) that is designed for self employed individuals whose businesses have no full time employees. All 401(k) plans are qualified plans, and qualified plans do not have any special restrictions on who can serve as trustee.
So the significant difference is that with a Solo 401(k), the participant can actually be the trustee and handle (more…)
Beating the Bubble Mentality May 8, 2008
Posted by Jeff Nabers in : Money, real estate , add a commentI recently talked to a real estate investor friend online who I have known for about 4 years. He started investing in the height of the housing bubble, and now I think he’s finding it difficult to shed the “bubble mentality”. In our conversation I did my best to cause him to question his perspective and his investing strategy.
I’ve pasted our Instant Message conversation below (with the screen names changed for privacy). I didn’t correct capitalization, punctuation or spelling errors, so you’ve been forewarned.
I thought this would be a useful post because of how tightly this gentleman seemed to grip onto his investment strategy he’d been using since 2004. How tightly are you gripping onto your investment strategy?
[19:00] re_investor: HI Jeff
[19:00] re_investor: How are you buddy?
[19:00] jeff_nabers: Hey there
[19:01] jeff_nabers: I’m doing good. How are you?
[19:01] re_investor: How have you been doing?
[19:01] re_investor: Im alright!
[19:01] jeff_nabers: How’s the RE market up there?
[19:01] re_investor: OH its tight!!
[19:01] re_investor: Its flat and declined over the pervious 6 months
[19:01] re_investor: TOUGH
[19:02] jeff_nabers: what about cash flow?
[19:02] re_investor: Its cashing …
[19:02] re_investor: but, its still tight. I actually was in the process of buying another one
[19:02] re_investor: I stoped canceled the purchase/sale
[19:03] jeff_nabers: how did your previous investments turn out?
[19:03] re_investor: Oh great actually..
[19:03] re_investor: I sold the one in Fairview park
[19:03] re_investor: I got a cash buyer
[19:03] re_investor: The other three are turning out fine
[19:04] re_investor: The one house I have I have 67K in equity right now
[19:04] re_investor: I am currently renting it for 1K
[19:04] re_investor: but, I cant do anything with it until the maket comes back
[19:04] jeff_nabers: Sounds decent
[19:04] jeff_nabers: how’s the cash flow return?
[19:04] re_investor: Its about 300 dollars
[19:04] jeff_nabers: renting it at $1k what do you net per year?
[19:04] jeff_nabers: i see so 6k per year
[19:05] jeff_nabers: how much money did you put into it?
[19:05] re_investor: I was just in the process of refinancing it
[19:05] re_investor: and the mtg company I was using closed up
[19:05] re_investor: so the refi stoped
[19:05] jeff_nabers: how much money did you put in tha tone?
[19:06] re_investor: I was bummed out
[19:06] re_investor: I put in 15K
[19:06] re_investor: to fix it up
[19:06] jeff_nabers: and the down payment was?
[19:06] re_investor: It was alot
[19:06] re_investor: I cant remember…
[19:07] re_investor: I am trying to do something with the equity.. but, I dont know what
[19:07] re_investor: There is not much I can do
[19:07] jeff_nabers: you don’t remember how much you put down?
[19:08] re_investor: why are you wanting to no such details?
[19:08] jeff_nabers: i’m curious what your return is
[19:08] jeff_nabers: cashing out would only decrease your cashflow
[19:08] re_investor: I got into it on no money down
[19:08] re_investor: I had good credit
[19:08] jeff_nabers: well then i would never refi it and never sell it
[19:09] jeff_nabers: you are making a 40% annualized return on the cash you put in
[19:09] re_investor: yeah. Its only worth so much you know
[19:09] jeff_nabers: why would you ever want to take an asset like that off your books?
[19:09] re_investor: To use the equity in the house
[19:09] jeff_nabers: with 10 – 15 of those you’d never have to work again
[19:09] jeff_nabers: to use the equity to do what? continue working real estate like a job?
[19:10] re_investor: right. I just need 9 – 14 more of them
[19:10] jeff_nabers: do your other properties cash flow like this one? (more…)
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