Jason DeBono  0:00  

You can take $150,000 IRA and go buy $150,000 rental property and for the average kind of, I won’t say lay investor but but novice investor that’s a pretty, pretty easy entry point. Obviously, you know, rental real estate is is a big piece of the market because of its its ability to generate cash and appreciation. We see a lot of that moving up into syndicated deals. So we see a lot of multifamily, some syndicated some not, small apartment complexes, duplexes, triplexes quads and then we see full blown multifamily and then we and a lot of that is syndicated. So we see a lot of investors that own bits and pieces of apartment complexes all under syndication. 

Announcer  0:06  

Welcome to CREPN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast. Whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from you Experts!

J Darrin Gross  0:56  

Welcome to Commercial Real Estate Pro Networks CREPN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. Today, my guest is Jason De Bono. Jason is the NuView Trust Company, Vice President and in a little bit he’s going to share with us the benefits of using a self directed IRA. And but first I want to remind you if you like our show, Commercial Real Estate Pro Networks, CREPN Radio, there are a couple things you can do. You can like you can share and you can subscribe. As always, we encourage you to leave a comment, we love to hear from our listeners. Also if you’d like to see it handsome our guests are, be sure to check out our YouTube channel. And you’ll find us at Commercial Real Estate Pro Network on the YouTube. And also please consider subscribing there as well. With that, I want to welcome my guest, Jason, welcome to CREPN Radio. 

Jason DeBono  2:10  

Darrin, Good day. Good to be here. Thanks for having me. 

J Darrin Gross  2:12  

Well, thank you for joining us. I’m looking forward to talking with you about self directed IRAs. But before we jump into that, if you could take just a second and share a little bit about your background.

Jason DeBono  2:35  

Sure. So I started I started in this industry 15 years ago, I was a a senior in college and looking for something to sink my teeth in and I stumbled across a company that helped people use retirement money to buy real estate.  And it was complete, probably opposite of what I thought I would be doing when I got out of school. It wasn’t as sexy or glamorous sounding as some of the other kind of finance and sales jobs, but it was really my dad’s reaction when I talked to him about the interview that caused me to take the job. And he, you know, I remember him saying, wow, you know, I didn’t know you could do that. I asked my broker about buying real estate about five years ago, and he told me it was illegal. And so dad said, No, obviously it got me even more intrigued. And here we are 15 years later, but it’s been a fun ride and certainly an interesting one, as I’ve watched the really the industry of people using their IRAs for non traditional investments grow from a you can’t do it, it’s illegal. What is that to? Wow, that’s a powerful tool. How do I access it?

J Darrin Gross  3:39  

Well, that’s actually probably a pretty good transition here into you know, kind of the the topic here. I mean, your dad’s reaction, because I think that you know, a lot of people if you have a W2 job, you’re conditioned to recognize a 401k or possibly if you’re self employed to an IRA, but, you know, I think there is a lot of unknown and there’s a lot of misinformation or just, you know, you haven’t really pursued, or people haven’t really pursued the question to understand what the options are available to them. And so I was wondering if we could start with just, you know, what is a self directed IRA? And if you can compare that to, like a 401k, and just kind of who, who’s eligible for this kind of thing?

Jason DeBono  4:36  

Yeah, great, great question. And I’ll break it into two. The first part and kind of, you know, as far as what is the plan itself, an IRA is an IRA. So there’s a few different types based on how you earn money, and how you want to pay the taxes. So you have your traditional Roth, right one is pre tax, meaning you pay tax at the end, what the Roth is tax free growth. So you paid the tax at the beginning, you have a simple IRA, which is a a an IRA for small businesses. And then you have a SEP IRA, which is a an IRA for people that are self employed. A 401k works nearly identical from a tax standpoint, to those accounts, there’s a Roth component, just like there isn’t an IRA. But a 401k is really designed to be an employer plan, right? It’s not an individual account, it’s set up by an employer. So if you work for a company that offers it, and many do, and in today’s day and age, then you’re participating in their plan. 

Jason DeBono  5:33  

While you’re under their plan, you got to live by their rules. So most 401k plans, you know, from a planning standpoint, or great from an investment standpoint, are very limited. So if you work at AT&T and you’re covered under their 401k plan, they may only offer you eight or 10 or 12 mutual fund investment options, and it’s because they want it’s their plan and they want to reduce the risk for the plan itself so they don’t want to give you a large amount of choices. Most people when they leave Employers they move their 401k to an IRA. So you don’t have to most people with IRA money don’t necessarily contribute through an IRA they contributed through their 401k and rolled it over when they left their employment. The plan works the same way from a tax perspective. So whether it stays in a 401k or sits in an IRA is really irrelevant. The reason people do it is an IRA gives you the full breadth and scope of investment choices. So if you have an IRA account, you really have two places that you can get it custody. One is that your traditional break bank and brokerage so you can go to a Schwab or Fidelity, Bank of America, they will hold custody the account, and they’ll give you unlimited choices, so long as they’re publicly available securities. So you can buy any publicly traded stock bond or mutual fund.

 Where a company like new view comes in. And the other option for individuals is we don’t make your IRA any different. So we don’t change the tax code. We don’t do any of that we still provide the same level of custody, that a Charles Schwab would.  But what we do and what is self directed does that’s unique is it gives you two things, it gives you more choices and more control. So the more choices part means that as a custodian new view doesn’t have investment limitations like Schwab does. So we don’t care if you buy a publicly traded security or you buy a rental house or you buy a, a, you know, a commercial building where you invest into an industrial complex. And we’ll talk a little bit more about how those deals are structured here in a bit. The second thing it gives you is more control. So self directed account gives you the ability to pick your own investments. In fact, NuView will not help you with the investment selection process. That’s the self and self directed. So, you know, kind of two key things to take away is his plans or plans, right? They all work a little bit different based on how you earn your money. But investments are really the key difference of a self directed account, because you get to make your own investment choices and you get an investment menu that’s not limited to public securities.

J Darrin Gross  7:56  

Gotcha.  That’s a great, great breakdown of the differences there. On on the the IRA thing, when I asked you if you are employed by a, you know, normal or traditional employer and you’ve got a 401 K, are you eligible to then create a separate IRA account?

Jason DeBono 8:22  

You so the the short answer to that is yes. I think like everything in the tax code, there’s always a little caveat based on how much income you earn, you know, that may cause some exclusions or may limit tax deductibility. So, you know, take this answer is as a generality, and certainly, you know, talk to a, you know, your own tax professional as it relates to, you know, any limitations you may personally run into, but, but yes, I mean, an IRA is separate from a 401k. So, if I have a 401k and I make my contributions, I as an individual can choose to contribute to an IRA as long as I have eligible earned income to do so which obviously my W2 job provides me Um, what what you cannot do while you’re gainfully employed is move the 401k money into the IRA. So they’re separate accounts. And while you’re and this is a general rule, but while you’re employed with the company in which you have a 401k plan, it’s their plan their rules, and so you have to keep the money under the auspice of the plan. But yeah, we see a lot of clients that have 401k plans, and then in addition make IRA contributions as well.

J Darrin Gross  9:26  

And along those lines, is it is there a limitation on the number you can have? So if somebody has a W2, but they’ve got a couple of side hustles or whatever, is there a I mean, are they limited to any one number? Could they create one for each or or does it matter?

Jason DeBono  9:48  

Well, it does matter as it relates to total contribution amount. So when it comes to IRAs, the depends on the structure, what type of IRA is I mentioned that the traditional IRA Law really have nothing to do with any with how you earn your money. As long as you earn it, they don’t care, you don’t have to be self employed to qualify.  Something like a SEP IRA, you know, if you were using your side hustle, self employment income to qualify you for the SEP, you could do that you could make contributions to it, you probably wouldn’t set up a set for each of your businesses, I can’t see a scenario in which you would, but it’s possible. I mean, there’s some, maybe some underlying reason why someone would do it. But no matter what you’re going to be capped on the overall contribution limit, regardless of the number of planes you contribute to. So that’s really the thing you got to be more aware of and more concerned with is the contribution cap, there is no necessary limit. In theory, if you have a $7,000 contribution limit, if you’re over the age of 50. Let’s just say to a Roth IRA, you could go set up 10 Roth accounts, and you could put a $700 contribution into each one. Right. So as long as your overall

J Darrin Gross  10:58  

Your overall contributions capped there.

Jason DeBono 11:00  

You got it. And there’s not a lot of benefit to have a bunch, but maybe to create some increased eligibility in a self employed retirement account like a SEP it’s possible there may be some scenarios where that’s applicable.

J Darrin Gross  11:12  

Gotcha. So, a self directed IRA, you mentioned that gives you basically the control and choice. Is is the primary way that you see people funding this. Is it a rollover from a 401k? Or do you find that it’s more of self employed? People are, are creating these?

Jason DeBono  11:37  

Well, it’s it’s all of the above.  There’s no doubt the the biggest contributor is 401 K’s, right? I mean, people with 401k plans have payroll deduction. You know, they may work a long period of time it’s getting taken out of their paycheck. They don’t really realize it, and over time it accumulates. So yeah, the vast majority of IRA money does rollover from 401 K’s. We do have a lot of self employed individuals because a SEP IRA has a contribution limit and don’t quote me on the exact number, but I think it’s 56,000 is the cap, you know, you start getting into much more significant amounts of money. So, yeah, we have a good portion of people that are self employed that do, in fact, set up a SEP IRA with us. And there is a plan called a Solo 401k. For those out there that are self employed, that that I would strongly encourage you to talk to our team about, because it’s, it’s a SEP IRA on steroids. It’s basically a 401k without having a third party employer. So you’re You are the employer and you get to you get to wear the hat of the employee and the employer in the plan and really double dip on contributions. So it’s a it’s a fantastic plan. At any rate, back to your kind of question. When you have a a, a set that has a higher contribution limit. Yeah, we do see a lot more clients utilizing that. It’s pretty hard to get a lot of value out of self directing an account if you’re putting $6,000 you know, a year into a traditional IRA. So most of our clients Even though they are contributing, they’re starting their account with us with money that existed somewhere else.

J Darrin Gross  13:05  

Gotcha, gotcha. So you mentioned I guess the difference is if you are self employed, or for a self directed IRA, I think it’s somewhere in the mid 50s. As opposed to you know, as a, I guess, a traditional employee. For an employer that has a sponsored plan you’d be limited to the to the amount you can contribute. That seems pretty dramatic. It seems like anybody that’s that self employed would be all in on this kind of thing. If you’re obviously I guess if your business is successful, and you’re making enough money to do you know, investing in stuff, but it seems like that would be a just almost like a no brainer. Do you find that people know about this or they have they never heard of this. What’s your experience talking to people?

Jason DeBono  14:03  

You know, the hardest? First of all, you’re absolutely right. I mean, at face value, it is a no brainer, right? If you’re self employed, why wouldn’t you want to take advantage of your ability to contribute much higher amounts.  It doesn’t mean you have to it just means you can and so in, in good years put more in and in, you know, in years that aren’t as good or more lean than put less than that. It’s really two issues, Darrin that we see out in the marketplace. The first issue is plan, type and saving as a whole, right? Because if you think about it, who cares what you invest into, right, that’s really secondary, you can invest if you don’t save the money to invest. So what we see with a lot of self employed individuals, and obviously, you know, a lot of real estate professionals fall into this camp and, unfortunately, self employed individuals while they have lots of great tools available to them, they’re not very good Savers, just generally. And and some of that is is excusable meaning, you know, they’re they’re in a business by They’re trying to grow a business. They’re reinvesting in the business. And, you know, they’re not, they’re not saying that they don’t want to save. They’re just their view is if I don’t contribute to a retirement account, and I put the money back in the company, I’m building wealth, you know, in the same manner. So, from that perspective, it makes sense, and I understand it. 

Jason DeBono  15:17  

Unfortunately, a lot of people, they have very successful years and they don’t change their saving patterns, because they don’t have an employer taking it out of their paycheck, right? They have to be proactive. And that’s a tough thing for a lot of people to do when it comes to saving and especially saving for retirement because it’s, you know, it’s it’s one thing to move money out of your checking account into your savings account where it’s, it’s there, if you want to go take a trip or buy something or whatever it may be that you spend your money on. You pump it into a retirement account and you’re making a commitment not to touch it for some time and that’s that’s a hard decision for a lot of people to make. It’s the right decision and one they should make but for a lot of self employed individuals, they’re just not making it.

J Darrin Gross  15:55  

Yeah, it’s unfortunate that that is the case. I know just the kind of mental tality of delayed gratification or, you know, some future date as opposed to, you know, and like you mentioned, if you’re in business and you’re trying to make the business successful, I mean, there’s, there’s probably some immediate needs that a lot of businesses face, but still, just to have the discipline to, you know, create, create something. So you’ve got something regardless if the, or what happens to the economy or your business or whatever that’s, that’s seems like, you know, a missing piece for a lot of people and that’s, that’s unfortunate. So, we talked about or you’ve kind of mentioned and distinguished between the IRA and the 401k. We’ve kind of talked a little bit about what you you can put in there. Let’s talk about the investment options, because like you mentioned, you you save the money now you’ve got the money to invest. What what are the investment options?

Jason DeBono 17:02  

Yeah, so the the investment options really are anything except, and when I say except it’s because the IRS has guidance around around the the permissible investments in an IRA are actually built the other way. There’s no listing of permissible investments, there’s no word in code that says you can buy a stock or bond or mutual fund in an IRA. The code is designed to tell you what you can’t do, because that’s a much shorter list right? Then then what you can do so so if you really think about it, the the IRA regulation is really telling us, you know, stay away from this, this and this, and whatever else is available is available to your IRA. There’s really only two major asset or two two rules that we have to follow. And I think the key thing to understand and we haven’t talked too much about this, and it may well be worth taking five minutes to talk a little bit about the tax benefits to a retirement account.  Because what what people tend to overlook is saving money is one thing, saving it in the right vehicle is a much bigger decision. And I’ll talk about that here in a second and illustrate how valuable it is from an IRA standpoint and tax advantaged growth. 

Jason DeBono  18:09  

But putting that aside for a minute, the rules are really around protecting the tax integrity inside the IRA. So they’re not concerned so much about the investment integrity, as long as you’re, you’re using that as an investment vehicle that’s passive. What they don’t want is people to funnel money into an IRA for all the tax breaks and then use it for investments that benefit themselves or, you know, funnel money in or out and really created as a tool for tax evasion. 

So the only two rules that really play into an account as to whether or not you can make an investment is number one, no life insurance or collectible. So you’ve got to steer clear of, you know, anything, any life insurance, you know, you cannot own in an IRA, and then collectibles and they define that as works of art rugs, metal and gems, stamps, coins, alcoholic beverages. There is an exception to the metal standpoint. You can buy gold, silver, platinum and palladium as long as it’s bought for its intrinsic value or weight value. So if you bought a, you know, two ounce gold coin, and you paid what, you know, spot price on gold, and it was a pure gold coin, right? That would be permissible. If you wanted to buy a gold coin that that was, you know, found in the Titanic, that would be impermissible because it’s really, it’s numismatic value that you’re buying, you’re not buying its intrinsic value. So one little caveat there. 

Rule number two really is and that’s it. That’s the list of prohibited investments. I mean, it’s it’s it’s negligible, right? I mean, there’s really no issues there. Their bigger issue is, is what are the relationships and the parties of the transaction. So for those in commercial real estate, I mean, you probably are familiar with the term self dealing, you know, or, you know, this would be the equivalent of if somebody was was losing their property to a short sale and you know, the bank’s not going to allow them to short sale it, you know, to their wife, right? Because they understand, hey, that’s not arm’s length, right. And obviously, we want the integrity of the transaction to be intact. Same set of rules in an IRA. They defined the people that an IRA cannot do business with in any way, shape, or form, as you and your spouse, your parents and grandparents, your children and grandchildren, and the spouses and businesses of those parties. So my IRA, because it’s a tax advantaged vehicle cannot loan my wife money, right? Because obviously, I’d loaned it to her at a discount, which would get money out of my IRA tax free, or I’d loaned it to her at a premium right, which would allow us to make big payments back to the IRA, which would be tax free growth, and allow us to sock money away maybe even higher than the contribution limits. So for that reason, the IRS has no life insurance, no collectibles, and no doing business with family members, you know, that we believe are too close to the flame to really be done in an arm’s length, outside of that, whatever you want to do, by sell etc is all permissible.

J Darrin Gross  21:01  

Gotcha.  So like, with that family thing, if I understand right, the the UP DOWN is the the issue. But if I had like a nephew or something further out is that is that permissible or is that? Are we still too close?

Jason DeBono  21:19  

No, it’s absolutely permissible. There is a little caveat all hit on But yeah, I mean brothers, sisters, aunts, uncles, cousins, nieces, nephews. They’re not defined in IRS code. They don’t the IRS doesn’t have any issues. But they do require they have a little kind of statement or declaration that they’d be arm’s length. So if you’re going to loan money to your nephew, for example, just because it’s kind of easiest example. If you loaned it to them at 30%, the IRS would have an issue with that, right? They’re going to say, hey, look, that’s not a market rate loan. The relationship of the parties obviously dictated that or if you loaned it to them at 2%, right, the other end, the IRS could take issue, so What I want to make sure everyone takes away from this is, is the people that are not disqualified are truly fair game. But you always want to act within market rates. Otherwise the IRS could come in and say, Hey, this is an issue because you did business with your nephew. This is an issue because this is an arm’s length transaction. Right? The relationship of the parties is dictating the terms. And one of the things that I usually ask customers when I do talk to them about, you know, a specific deal, and I’ll get questions like, you know, I’m going to do this deal, and this is why it’s so awesome. It’ll give me all the details. And you can tell they’re trying to kind of convince me which you know, is not I’m not the one that should be convinced in this case, right. But I’ll ask him the question, if you were buying this investment, you know, or, or if this investment is available, but you weren’t going to buy it and instead I was going to buy it. Would they offer me the same terms that you’re getting? And if the answer is yes, right unequivocably, then then sure that’s probably an arm’s length transaction. If the answer starts with Well, you know, then I usually let them know, then yeah, then the deal is being dictated by the relationship of the parties. And while it’s not disqualified directly, it could clearly be a violation of the arm’s length provision. And that’s something that you want to make sure. So as long as you’re buying at arm’s length selling at arm’s length and and, you know, not buying life insurance, not buying collectibles, the world is your oyster in terms of what you invest into, literally.

J Darrin Gross  23:27  

Gotcha. So, tell me the are the kind of the real estate side of things. We talked about the relationship. But let’s talk a little bit about the investing in and the types of real estate. I mean, we’ve kind of talked about loans a little bit here, but what about investing in a specific property? And can we talk a little bit about that as far as what our options are or how that governed?

Jason DeBono  24:02  

Of course, real estate, you know, obviously comes in many different shapes and sizes. I thought when I started this in this business 15 years ago, I thought I knew what real estate was. And it didn’t take but a couple of hours here for me to realize I didn’t know a whole lot about how many, you know, ways groups are making money in real estate and how many different ways you can plug into the market. But really any type of real estate I mean, obviously, going down to its most simplistic state, right, we’re all in you know, raw land is some we have clients that own everything you could ever imagine. So, you know, things like raw land. We have clients that own citrus farms and dairy farms, you know, the land underneath citrus and dairy. They can lease that out. We have clients who don’t hunting leases and lease it out. We have clients that own land, and they have billboards on it, right. We have clients that own raw land that’s in the tractor, you know, the they’re hopeful in future progress, and they do nothing with it. They just simply pay the tax bill you know, try to get an ag exemption and hold it for the long term till like you need to be rezoned or or developed into something bigger. Moving up into, you know, single family obviously that’s a big piece of our business because it’s a very easy thing for people to access with an IRA right? You can take $150,000 IRA and go buy $150,000 rental property and for the average kind of, I won’t say lay investor but but novice investor that’s a pretty entry pretty easy entry point. Obviously, you know, rental real estate is is a big piece of of the market because of its its ability to generate cash and appreciation. We see a lot of that moving up into syndicated deals. So we see a lot of multifamily, some syndicated some not small apartment complexes, duplexes, triplexes quads, and then we see full blown multifamily and we and a lot of that is syndicated so we see a lot of investors that own bits and pieces of apartment complexes all under a syndication.  We see that in all forms of commercial real estate, lots of syndicated deals for assisted living facilities and grocery, you know, stores and industrial properties and, you know, triple net type properties.  All of which can be be held wholly in an IRA or fractionally through some sort of syndication, office industrial, it really doesn’t matter. At the end of the day, you can either own a piece or all of that particular asset, as you know, from a real estate standpoint,

J Darrin Gross  26:29  

Gotcha. Now, are there any issues with buying a property that has any debt against it?

Jason DeBono  26:38  

There’s no limitations on your ability to do it other than the fact that the debt must be non recourse right now in the commercial world, obviously, that’s a very common term. But But for those that may not know what that is, non recourse means that that the debt is not tied to the individual. It’s simply tied to the asset. So if you think about how most people buy single family homes, right Especially the the owner occupied stuff, it’s all bought on recourse debt, the the bank is doesn’t really care much about the property other than its appraised value. They care about your ability to repay it. So if there’s an $1,800 mortgage, they want to know that you’re going to make enough money and have a high likelihood through the life of the mortgage of making enough money to support that 1$,800 payment. In a non recourse loan, they don’t care about you, they care about the underlying asset. So they want income producing real estate, that instead of looking to you to pay the $1,800, they can look to the asset, so they’re gonna look at that mortgage, you know, payment, and then they’re gonna look at what can that asset deliver. And if they believe that we’ll deliver more so using a single family example, obviously, easiest calculation, right? If you’ve got an $1,800 mortgage on that house, you’ve got to be able to prove that the comps will support it writing for $1,800 bucks. If the comps support it writing for 1500 bucks, they’re gonna have you put more money down until they get under the threshold. So it’s an asset based loan. It’s non recourse by nature to you as an individual. Even if it’s an IRA loan, it’s still non recourse to you as an individual. It’s only the underlying asset that that, that they’re looking at. So pretty straightforward. We see tons of non recourse stuff in the commercial side, we see a decent amount of it in the residential side but there’s very few banks that will do non recourse loans to single family we we can provide clients a list if they’re interested in most banks that do commercial lending are very familiar with non recourse loan, they’re going to require 20 to 30% down obviously, they want to make sure there’s some skin in the game for the the the operators and owners of that asset. But yeah, it’s it’s a great way to leverage. 

Jason DeBono  28:44  

One thing that’s worth, you know, maybe maybe stepping aside and chatting about here and I’ll just hit on is as a normal course of action, any cash investment in an IRA is not taxable. So, if you go out and buy a house and sell a house, you know, and you make a million dollars, there’s no tax if you go Buy, you know, an office building and sell the office building. If you paid cash for it, you pay no tax on the growth whether you made $1 or a billion dollars. In a leveraged scenario, the IRS is going to levy a little tax called Unrelated Debt Financed Income.  And they’re going to levy a tax not on the entire profit like they would if you bought it personally. They’re simply going to levy a tax on the the borrowed portion. So if you’ve got a an investment you make with 70% debt, then you can expect to pay tax on 70% of your profit. Not a bad thing because it’s going back to the IRA income tax free, but they’re going to levy a little tax to ensure that the money you’re using to grow your IRA that really is outside the IRA money, they want to clip a little off the top and while I you’ll rarely hear me say it’s a fair tax, but it’s application is very fair.

J Darrin Gross  29:50  

Gotcha.  I was unrelated debt financed UDFI is a

Jason DeBono  29:56  

UDFI

J Darrin Gross  29:58  

Gotcha, gotcha. So, I mean, real estate, you’re like said you’re pretty wide open as far as the opportunities. It sounds like you mentioned land and that it? Is that a pretty common one that you find people going to or if you had to, like, I guess, look across the spectrum of the opportunities what’s what do you find to be the most common? One or is there a most common one? 

Jason DeBono  30:29  

Um, you know, it’s a tough question to answer because this custodian we aren’t really involved. We’re involved in the closing and we’re sending the money to the closing and the clients providing us the paperwork, but we’re not really looking through appraisals and you know, looking to see if it’s undeveloped land or develop, you know, or approved property. If I had to guess just kind of throw in lawn darts here. I would say probably, you know, without a doubt, asset real estate assets that have income, you know, income producing is A higher bit of our business than non income producing. But that said, there’s a lot of raw land type investments that our clients make. So our portion certainly going to be lower than then some of the income producing stuff but but a good portion nonetheless.

J Darrin Gross  31:16  

It just occurred to me I talked with somebody else here recently and we were talking about flipping land, you know, and and seems as though there’s there are those that have figured out how to do that on kind of a volume basis where you can you can buy a piece of land and remarketed and and then either liquidated in total or put it on some sort of a payment plan or something like that. I was caught like, this would be a pretty good vehicle for getting involved in that if I’m understanding right one because if you if you’re able to purchase the land outright and have no loan against it, you can then create loan against it, which would then I would assume would would that income would go into your, your self directed IRA. But it would seem like a pretty clean way. Because you’re not talking about buying from family you’re not lending to family and you would be outside of the UDFI if I understand things properly.

Announcer  32:26  

Yeah, that’s, that’s certainly a strategy we see deployed. We see we see it in a few different formats. You know, obviously there’s speculative land investing, right, you know, which is if we all look back and in our respective communities, there was definitely areas that we you know, that we we look back and go man that was cow patties 20 years ago, and boy, I wish I bought it when it was cow patties because what you know, the the amount of money that that you know, an acre is selling for now is you know, the 200 300 x you know what I could have bought it for not too long ago. So we do we see that we see a lot of people speculate in path of progress type investments. But we also see a lot of people that deploy that strategy on in a variety of formats we do. I’ve seen groups they do, it’s not land banking, if you will, but it’s kind of under that. They’ll go into areas where they can buy up a good portion of lots or they may go to a master community where it’s being developed and they may buy up 20% of the lots and negotiate a discount and and it alleviates the marketing concern for that developer to have to go sell them and then it also gives them the ability to do contract for deed and finance the lots for the individual. So you know if I go out to a you know in a town and doesn’t really matter where it is and I buy up 10 or 20 lots I can now advertise it I’ve got you know, raw land with with cheap financing available, and because financing raw lands a pain, but if I can take a lot I paid $8,000 for and sell them for $10,000 but I can offer very fast terms where you can pay me cat, you know, pay me back, you know, over a three or five year period to pay that loan off. Now it’s a very attractive option. So I made the $2,000 on the land deal, right, which the quicker I sold it, the higher my return. And then I got a $10,000 debt, you know, note, if you will, that I’m getting payments on and so I can finance it at six or 7% over a three year period and allow someone to go own land that maybe otherwise couldn’t have done it. So yeah, you’re you’re you absolutely are hitting on a strategy and something that we I won’t say we see all the time, but we certainly see that and it’s a great option.

J Darrin Gross  34:37  

No.  I guess just the your clean from all these other potential issues kind of thing is kind of what what triggered that thought for me. Sure. So on as far as the the tax strategies you’re still in a tax deferral mode, correct. I mean, this is there’s I mean, there’s no secret when you pull the money out of this investment or this vehicle, that’s when the tax is due. Is that is that right?

Jason DeBono  35:09  

Mostly right. Most IRAs are taxed at the end, they’re they’re considered tax deferred programs, you get a tax benefit to put the money in and you pay tax when you take it out. But there is a Roth IRA and a Roth IRA and there’s a Roth component to a 401k as well. But the Roth basically says I don’t want to pay tax at the end, I’ll pay it as I put it in. So you’re, you’re likely paying at a higher tax rate because you’re paying during your peak earnings years, but you’re paying at a much lower amount. So I use the example of paying on the seed versus paying on the crop and when people ask me which one is better, I asked him how good a farmer are you? Right? I mean, if if you’re going to put money into a CD and just put it in a conservative investments and hope to get three to 5% for the next 15 years, I would tell you take the deferral right. But if you’re going to go out and Our clients have a much higher proportion of Roth accounts than most custodians because our clients are taking their investments more seriously. And they’re making double digit returns, not everybody and not to say that we have clients that lose money and that there’s no risk. But we see clients do very well at a lot of deals. And if you know the deal is a slam dunk. The beauty is that at any point, you can move money to a Roth. So if you’ve got a you know, using yourself as an example, and you know, let’s just assume you’ve worked in industry for 15 years, you got a couple hundred thousand dollars in an IRA that you’ve rolled over from your old 401k and you go out and you see a deal, maybe it’s a syndication on a on an industrial park, right. And so you’re going to put 50 grand into that deal. If you believe that man, this is the perfect timing this deal is going to be incredible. You know, I know the market I understand that the developers I know what they’re doing. And there’s just such a strong need for this. I’m going to see two or three x return on my money over five years. You could declare right before you make the investment by simply filling out a form for NuView, a $50,000 Roth conversion.  So you’re going to move 50,000 from that couple hundred thousand dollar account into a Roth, you’re going to pay tax in that tax year, whatever your tax rate is on that 50 grand. But if that 50 grand grows to 200 grand, five years later, it’s 100% tax free. And the beauty is it’s not just tax free on that transaction, you can take that 200 grand and go put it into a deal and turn it into 300. And that’s tax free and turn into 400 and 500.  And if it grows to a billion dollars, right, it’s completely tax free forever. So the Roth is a very attractive tool and one that you don’t have to pre plan for you can plan as you go.

J Darrin Gross  37:45  

I love the Roth. Just the concept there. I mean, it takes all that you know, at the end when you need the money, you’re not having to do the calculation on you know, your whatever your tax rate rate is a percentage that you end up with your you know, it’s it is what it is based on what the Yeah, what your account value is. That’s great. So, I asked you about kind of the typical type of deal. Can you describe the typical investor who takes advantage of a self directed IRA?

Jason DeBono  38:21  

Yeah, our our, you know, it’s really hard to pinpoint exactly what makes a self directed IRA, a self directed IRA, you know, investor, but I’ll give you kind of what we see. So the first thing that that I can tell you is, most not all, but most of our clients are engaging in the types of investments they would hold in their IRA outside their IRA currently. So most people don’t on a whim decide I’m going to go by become a real estate investor, and I’m gonna use my self directed IRA to do it. There’s some that do and they’re, you know, they they they run the ideas parallel to getting into the investment market and using their IRA.  But most of the people, if for everyone that’s listening to us today, you know, if you got to ask yourself, are am I interested in the opportunities that a self directed account provides me that a traditional account of Charles Schwab doesn’t? 

If the answer is yes, then you are the profile of our customer. So the reason that that’s so important and I’m gonna just step aside for a second and talk about kind of the the opportunity. So most people that buy and sell real estate do it for a variety of reasons, right? I mean, they buy it because they like the asset class, they understand it, it’s much easier to understand then stocks and bonds, you can use leverage a lot easier than you can in the stock market and you have a lot more control than you do in the stock market all great reasons to own real estate of any kind, residential or commercial or anything in between. But what people don’t realize is the opportunity from a tax standpoint that an IRA can provide. So if you’re an investor today and you buy and sell real estate, again, residential commercial doesn’t matter while you’re getting some tax benefits, Right depreciation and write offs and other things. It’s still a taxable activity. So as you generate income, you got to follow it on your tax return. And what people are realizing is they can make the same investments. But if they do it inside their IRA, they’re not subject to having to add it to their tax return. So while they give up depreciation, right, which gets recaptured anyways, and while they give up some write offs, they’re giving it up because they’re, they’re eliminating a tax bill from the get go. And I’ll illustrate how powerful this is. 

If you take $1 and you double it for 20 years, so $1 becomes $2 and $2 becomes $4. Four becomes eight becomes 16. If you double it for 20 years, and you do it in a taxable account, meaning you got a 25% annual tax rate so you do it in your personal bank account. If you start with $1 at the end of 20 years, you will have 75 ish thousand dollars. Right now obviously that’s great, right? We turned $1 into 75,000 bucks. I mean, who would was would be upset about that. But if you take that same dollar and before making the investment, you put it into an IRA, and then you invest it every year, doubling it for 20 years, instead of $75,000, you end up with over a million dollars. Wow. So the numbers are staggering. So So for those that are listening today, if you’re taking you’re looking at your real estate portfolio, and it may be fantastic. I’m not telling you that you made a bad choice. And I’m not telling you shouldn’t use your personal money to buy real estate, I think it’s a fantastic option. But if you want to use you’re going to gain two things with a self directed account, you’re going to gain one the ability to cherry pick the investments before you make them that you think may have the biggest gains and those belong in your IRA because they’re going to have the least amount of taxes at zero. The second thing that you do is you get to mirror the likely what you’re doing and using to build your personal wealth already right. And you’re simply doing it in your IRA and if you go look at the numbers, you know, it doesn’t take long If you look at the millionaire list or the billionaire list, the vast majority of the investments for all of the people on that list are you guessed it, real estate, right? So it’s a great asset class. And so we don’t, we’re not here to tell you that the asset class only belongs in an IRA. We’re here to tell you it belongs in an IRA and your personal account. And it gives you the ability to invest in what you know and understand without putting that money into the stock market, which I think we’d all agree is is a real tough place to even make sense of let alone you can make money but making money without knowing what you did is kind of like going to Vegas, right? It’s hard to repeat and it involves a lot of luck making money in real estate. While it involves some luck, we all need it. Right? Right timing right property, etc. Most people in real estate 80% of their success is not luck based.

J Darrin Gross  42:48  

No, no, it makes a lot of sense. And I appreciate you sharing that example of the, you know, one with tax and one without credit tax. It’s It is incredible when you look at it over time how the money really adds up.

Jason DeBono  43:05  

Yeah, you’re not kidding.

J Darrin Gross  43:08  

So, Jason, if we could, I’d like to shift gears here for a second. As I mentioned to you before we started by day, I’m an insurance broker. And I work with my clients to assess risk and determine what we can do with the risk risk management. And there’s three strategies we typically look at. The first is can we avoid the risk? If we cannot avoid it, we look to see if we can minimize the risk. And if that’s not an option, then we look to see if we can transfer the risk. And that’s what a an insurance policy is. And so, I like to ask my my guests, if they can take a look at their you know, profession, what are the clients are doing? Let you define, you know, the the who or the how you want to apply this question, but if you You can take a look at and describe what you see is the BIGGEST RISK. And just again, for clarity, I’m not necessarily looking for an insurance related answer. So, with that, I’d like to ask you, Jason de Bono. What is the BIGGEST RISK?

Jason DeBono  44:22  

I think the BIGGEST RISK for a self directed account is that you take responsibility for all the investments, and it’s a risk of personal accountability, right? If you keep your IRA in the stock market, one really nice benefit is that when it goes up and goes down, you know, you can kind of finger point your way around around it. Risking in a self directed account means you’re taking on all the risk. There is no broker, there’s no third party, you know that that’s making your investments on your behalf. Now, in a self directed account, you can certainly rely on professionals right. Commercial brokers that can give you guidance and Advice insurance agents that can help you walk through the process. So you can get professional opinions, but at the end of the day, you’re the one saying I want to buy that. And so that is your risk that you’re inheriting. Obviously, you know, I love your, your example of kind of the three approaches, right? Which is to, to, you know, to look at risk, and understand whether or not we can avoid it, minimize it or transfer it. And I think excuse me, in a self directed account. From an investment standpoint, you can do all three of those things, you know, you can certainly, you know, avoid the risk by buying investments that have less risk, right? You can minimizing it, minimize it by educating yourself, right? So many people look at investing and wonder what went wrong and you know, there’s a good saying I rely on all the time and that is the cheapest lesson that you’ll ever learn is somebody else’s. And you know, we we all learned lots of lessons the hard way and some of those can be very costly in terms of time, energy and money. So when it comes to Investing seeking advice and counsel and knowledge and expertise is is a wise thing to do, literally and figuratively. So you can minimize your risk by investing into what you know and understand it. And then transferring risk, you know, make no mistake, if you move money from stocks and bonds into the real estate market, you’re transferring risk, right? you’re transferring the risk and exposure in the stock market to the risk and exposure in the real estate market. And that’s a personal decision that each and every person that makes that, you know, choice has to look at. And for a lot of our clients, they’re reducing risk by moving it right. They’re transferring risk from one asset class that they don’t know a whole lot about to an asset class that they in most cases know a good deal about. So all of those kind of long answer to a short question. But But without a doubt, if you’re going to self direct your account, the risk you’re taking on is that you are 100% responsible, NuView will not offer you an investment put you in an investment recommended endorse it, approve it. It’s 100% self directed

J Darrin Gross  47:01  

No, I appreciate you sharing that, you know, risk reward there if you know and I guess the flip side of that is when you’re participating in the other defined vehicles the rewards probably more limited based on the risk tolerance that the people who have defined those investment vehicles have your setup so that’s good. Jason before we wrap up, where can listeners go if they would like to learn more or connect with you?

Jason DeBono  47:31  

Sure, the easiest way to to at least get some more information and find us is our website. That’s NuViewtrust.com and it’s new view with a u, NuViewtrust.com. Obviously, it’s chock full of information there. Our contact info and everything is there as well. And or you can email me personally at Jay for Jason de Bono D Eb o at new view, trust jdebono@nuviewtrust.com.

J Darrin Gross  48:00  

Jason I can’t say thanks enough for taking the time. I learned a lot.  And I hope we can do it again soon.

Jason DeBono  48:08  

Oh, Darrin, thanks so much for having me. It was fantastic. I really enjoyed being here.

J Darrin Gross  48:12  

All right. For our listeners, if you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CREPN Radio.

Intro  48:32  

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