CASE STUDIES: SUCCESS STORIES
Self-directed IRAs Can Boost Your Wealth While Positively Impacting Your Community
R ex, a real estate investor from Illinois, purchased a foreclosed single-family home in 2013 for $47,000, including some rehab costs. After renting it for a year, he was able to sell it for $69,000. This looks like a profitable, somewhat typical real estate invest- ment transaction. But in this case, Rex completed the deal inside a self-directed IRA, his profits returned tax-deferred to his retirement account, and he helped a family remain in their home of 40 years. Unlike Rex, many investors do not realize there is a multitrillion-dollar source of capital out there brimming with potential: the IRA and retirement plan market. Retirement plans account for 34 percent of all household financial assets in the United States, according to the Investment Company Institute (ICI), but their true potential has remained relatively untapped. The ICI estimates approximately $23.5 trillion is held in retirement plan assets, $7.3 trillion of which is held specifically in IRAs. Despite the enormity of the nation’s retirement market, only 2 percent of IRA investors understand they can utilize their retirement plans for more than stocks, bonds and mutual funds. These investors have turned to self- directed IRAs to invest in assets they know best—real estate being a common and popular asset type—to build future wealth in their tax-advantaged accounts. THE BENEFITS OF REAL ESTATE A 2014 Morgan Stanley study of wealthy individuals showed that 77 percent of millionaires owned real
estate in their portfolios. But you certainly don’t have to have a million dollars in the bank to reap the benefits of real estate investing. When you recognize the true potential of your IRA capital—for example, the ability to invest in real estate, the potential to earn interest on private lending agreements or to purchase tax liens — more opportunities begin to emerge. Perhaps even more important, your investments can significantly improve and revitalize a community. By looking around you for investment opportunities, you can use your capital to have an impact that would otherwise not be realized through public or commercial development, all while growing your wealth. successful self-directed IRA real estate investments, realized by Equity Trust clients, so you can begin to think about the various ways your retirement dollars can do well for you and for others. Since the housing crisis of 2008, many homeowners have been stranded with underwater, or upside-down, mortgages—owing more than the home is worth. Neighborhoods have been destroyed. There’s a deep human cost to the crisis: families losing their homes. Rex, the Equity Trust client mentioned earlier, used his self-directed IRA to help an Illinois family stay in the home they had lived in for 40 years, while also benefiting his retirement. After reviewing some information on INVESTING FOR REAL COMMUNITY IMPACT Let’s share a few examples of
the property, Rex decided to drive by to take a look. It was obvious the home was still occupied—and next to the entry was a plaque bearing the family name. “It was sad looking at that proud plaque knowing this family home was in trouble,” he said. There was no answer when Rex knocked on the door, so he left his card. A few days later, he received a call from the homeowner, who explained that the home had gone into foreclosure after her husband passed away. Rex told the homeowner he intended to bid on the home, but that she could stay another month rent-free until the home’s purchase closed with the investment from his IRA. Then, when he won the bid, he worked out a deal with the homeowner’s daughter, Katie. Katie met with a home lender to create a credit improvement plan, and Rex signed her up with a rent-to-own agreement whereby she would pay $650 per month, tax-deferred, to his IRA to stay in the home. With his IRA, Rex also funded a $3,600 loan to help Katie pay off medical bills and a past collection. Eventually, Katie purchased the home from Rex’s IRA for $20,000 less than market value. Rex made a profitable investment, earning a 65 percent ROI on the home and a 15 percent ROI on the small loan, and Katie and her mother were able to
22 THINK REALTY INVESTOR REVIEW
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