I have some good news and some bad news . . . The good news is: You can! The bad news is: It requires work! Is it too much to ask for you to do some work for a few years so you can retire rich? You've got to work at something anyway, you might as well get rich while doing it. The information you're about to read is unknown to most of the world. Most people think the way to grow your IRA is to make annual contributions and let the manager of the IRA invest it in stocks and mutual funds. Then, over a period of 20 to 40 years, it grows into a large sum of money for your retirement. That's the thinking of conventional wisdom.
Let me tell you how I feel about conventional wisdom. It's almost always wrong! Let's take a look at a better way. Check it out for yourself and see if you agree. I speak to groups of people all over the country and sometimes I ask how many in the room have an IRA. I have never had more than a third of the class answer yes. So, why don't more people invest in an IRA? Here's what they tell me: They can't turn loose of the $2,000 or $4,000 maximum contribution. Having the money at hand for immediate usage is a lot more important than retirement. They never thought about it. They feel they can invest in other investments that can produce more income. They know they should but never seem to get around to it. If you're one of these people, it's probably time for you to wake up and take action before it's too late. You see, an IRA is about all we have left that our "Uncle" will allow us to use to grow filthy rich without paying taxes along the way. I don't have to tell you money grows a whole lot faster if the IRS isn't taking its 25 to 40% share as fast as you can make it. Every dollar you send to the government is money that can't earn you anything until the day you die. Every dollar you can stash away that's tax-deferred or tax-free can compound throughout the rest of your life.
For example, let's say you kept an extra $10,000 out of the IRS's hands this year and invested it at 15%, (which you easily can), and it compounded for 20 years before you started using it. How much do you think it would grow to? How about . . . $197,155. That's about two hundred grand you could have available for retirement by wising up and keeping the ten grand you're now giving away. This is assuming you don't have to pay taxes as you go, and you don't in your IRA. "But Ron, my accountant tells me I can't contribute more than $2,000 for me and $2,000 for my spouse each year. Where did you come up with this $10,000 figure?" Your accountant may be right. There is a limit to how much you can contribute. But wait! Go back and ask your accountant if there is any limit on how much your IRA can make in a year from its investments. He'll scratch his head and tell you no. . . There Is No Cap On How Much Income Your IRA Can Produce! Incidentally, if you have the nerve, ask him/her what their net worth is. Go ahead, I dare you! You probably won't like the answer. I want you to remember, this is the person from whom you're seeking financial advice.
"OK Ron, so tell me how I can make my IRA wealthy without making any contributions." Keep your shirt on, I'm getting there. If you're a real estate entrepreneur, you're making money from buying and selling or keeping houses. If I've trained you, you're doing this by using little or none of your own money. The objective is to create cash and cash flow by leveraging your brain, not your wallet or credit.
That's right. Your IRA can buy houses, the same way you do. You have to do the work, but your IRA gets the money, tax-deferred or tax-free. Here's a real life example in progress. A student called me with a house in Atlanta that's worth $575,000 in a gorgeous area. The seller owed $492,000 with a $4,200 per month payment. She was $13,000 in arrears. After some back and forth she agreed to deed us the house if we made up the $13,000 in back payments. We did our due diligence, verifying the facts and value with an appraiser. We've closed on the house and currently own it. But, instead of taking title in a trust with me as beneficiary, I took title in a trust with my IRA as beneficiary. I had my IRA administrator send the check to the closing attorney for the back payments, as well as instructions on how I wanted to take title. He created the trust, I didn't even have to appear at the closing.
Now in this case, my IRA did have to come up with $13,000 to make this deal work but normally when I get a deed, it's free or pretty close to it. Keep this in mind and don't get hung up on the down payment. Let's look at the results: We received $83,000 in equity for $13,000. We've obtained a beautiful home in the same area several Atlanta Braves have homes as well as Whitney Houston. We've purchased with no liability and can sell the same way. We simply took over the mortgage "subject to." So, what's our exit? It's simple. Sell the same way we bought it. Get as much down as possible, preferably $80,000 and deed it to someone else. Worst case scenario we get $40,000 or $50,000 down and take back a second. Or, take something in trade. Easy in, easy out.
Let's review: If we get $80,000 and subtract $13,000 before a payment comes due, we'll net about $65,000. That's $32,500 for my partner and $32,500 for me. Whoops, that's not true, that's $32,500 for my IRA! Tax deferred. What if I did three or four of these a year? That's a hundred grand I helped my IRA earn, tax deferred. And we're only talking about this year. What if I did this every year until I didn't want to anymore because my IRA had more money than I could spend?
At least, this is what I've been told by the people who administer IRA's. Of course, there are a few rules and more questions. I strongly suggest you do not do this without good, competent advice and participation. I must warn you that Uncle Sam frowns on buying a house in an IRA with the intent of flipping it quickly. They may tax you on the profit. Perhaps you may want to hold it in the IRA awhile before you flip it. Perhaps you'll only do one or two a year. I can't answer these questions for you and frankly, many accountants can't either. Seek the best advice you can find and do what you feel is best for you. Your IRA must be self-directed.
They'll understand what you're looking for and they taught me how to do this. Call them ask for a Self Directed IRA package. They will put your money in a money market account until you tell them what to do with it. When you find a use for the funds they'll write the check according to your directions and mail it to the address you give them. It takes less time to carry it out than it's taken me to tell you about it. Next, you must learn and understand the meaning of self-dealing/directing. It can be deadly to your wealth. You cannot sell your houses to your IRA. You shouldn't get your IRA involved in any deal you or your entity was previously involved in. If your IRA buys a house, it should go directly from the seller to the IRA and not pass through you. Don't take back notes on houses and give or sell to your IRA. Keep it clean. Enough said about that. Do your homework. Mid Ohio has an entire book answering all of your questions. I only have a newsletter article to get you started in the right direction.
Now, you may be thinking I'm advocating you using your IRA money to buy houses. Not hardly. The last thing I want you to do with your IRA cash is to buy real estate. Why?:
Put some deals in your IRA that don't require cash. Next, take that cash when they sell and buy all kinds of neat stuff to increase the yield on cash. Stuff like discounted paper, defaulted paper, mutual funds, hot stocks, etc. Here's the point. As long as your money is tied up in real estate it can't be getting a high return on semi-passive investments. It can only grow as fast as the real estate will allow. So, let's get the best of both worlds. Create cash by actively buying and selling houses with little or none of your IRA's money. Next, let's take those profits and make them grow by at least 15% per annum outside of real estate.
Make certain you ask about a Roth IRA and take time to learn its potential. You're never taxed, you can use it for a first time home or education for your children and you never have to take it out. Of course, there are exceptions and rules. So, take the time to learn about the ROTH and use it. If you qualify I promise you it will be a huge return on your time investment. I know! About now you're saying: "Well Ron, you just told me not to use my IRA's money to buy a house and yet you did exactly that with your own IRA." Guilty as charged! In fact, I'm quite often guilty of actually doing the stuff I tell you about. I guess that makes me a bit weird, doesn't it? I actually practice what I preach! But you interrupted me before I finished. I said don't use your IRA to invest in real estate but what I meant was, not for long term. If my IRA writes a check for $13,000 to buy a house with the expectation of getting back my $13,000 plus $32,500 within 60 days, is that OK? I don't need a spreadsheet on this one.
I bet that's better than any money market or CD you currently have. I'll bet that's even better than your stock portfolio's performance last year. Is It A Great Deal? yes. Is It The Best You Can Do? no!
You see, if you don't invest money you can't measure the return. That's my kind of deal. But hey! If you've got the cash you've got to do something with it. So, can I be excused because I didn't get an infinity yield this time? Try to tell your accountant or banker you can get a 1500% yield on your money. Watch their eyes glaze over. Remember, all it takes to get a tax deferred infinite yield on your IRA is for it to control or buy real estate without using its money. Can you option a property without money? Yes! Can you wholesale a house without money? Yes! Can you take a house "subject to" without money? Yes! Can you lease/option a house without money? Yes! Can you send Ron a check for all this priceless advice to make you rich? Yes! (Whoops, forget that one, I got a little carried away).
Wait, here's more! Did you know you could do 4 or 5 of these deals per year in your IRA without it being called a business and paying taxes? Did you know your child or grandchild can have an IRA you can start without their knowledge, that can become their own when they come of age? What a way for you to provide for your child's educational future. Without Writing A Check! Without Borrowing A Dime! Incidentally, if you open up an IRA for your child or grandchild, if I were you, I wouldn't tell them. Can you guess why?
So, let's play with some numbers. Suppose you can set aside enough time away from your J.O.B. to do 3 or 4 deals a year netting a total of $50,000. You decided you were going to do the same thing for the next five years and then quit. You know you can get a 15% return in your sleep, which you can. What was your total contribution?: ZERO!
Your IRA Made Money, You Didn't Contribute It.
What is it worth in:
- 5 Years? $387,548
- 10 Years? $779,498
- 15 Years? $1,567,849
What's it worth in:
- 5 Years? $775,096
- 10 Years? $1,558,996
- 15 Years? $3,135,698
When you check into the nursing home. . . may you own it, free and clear.
