- Hi, Clint Coons here of Anderson Business Advisors.
And in this video we're going to
discuss how to partner on real estate with
your self directed Roth IRA.
Okay, let's get started.
(upbeat rock music)
Alright now, you know that I'm a strong proponent
of using Qualified Retirement Plans.
And in many of my videos,
I talk about the drawbacks of IRA's.
But the fact of the matter
is that if you have Roth IRA's,
now you're gonna stay in that position.
That is we can't roll a Roth
into a Qualified Retirement Plan.
Roth IRA's have to stay as Roth IRA's.
And if watch my other video
on how to build your one million dollar Roth IRA,
well you're gonna have one anyways
if you're gonna follow that approach,
to saving for your retirement and to invest with.
And so I thought I do is cut a video
on how you can leverage down these assets.
How can you put them together to actually do more.
'Cause a lot of people have confusion
as to how they can use their funds to take real estate down.
They got a little bit money in this IRA,
their spouse has some money over here,
and they have some money over here.
And independently,
they have some funds
but they really can't do that many deals by themselves.
But if they could put it all together,
they could do a lot more.
This is what I'm gonna do,
I'm gonna show you how that's done.
So let's assume that you have your IRA.
We have an individual here.
This is a Roth self directed.
This is a husband's IRA,
inside of it is 150K.
This is the spouse's Roth IRA,
down here.
And it has 100K in it.
And together, each of them have $100,000
in their savings account.
And so they wanna invest in real estate.
So let's assume that we find a house
for $200,000 that we wanna buy.
Well as you can see,
we don't have enough money independently
to take that acquisition down
if we're gonna buy it for 200K.
150 here won't get there,
100 here won't get there,
100 here won't get there.
So what could you do?
We could do this,
if you don't want to pay tax on any of the income,
you can set up a limited liability company right here,
an L.L.C.
Put in a 100K from that IRA.
100K from this IRA.
You got your 200K.
There you go.
50-50 ownership here, okay?
'Cause each of us put in $100,000,
so we'd split that L.L.C. up.
50-50 between these two IRA's.
Now, if you're making $10,000 a year
in income from that property,
it would be tax-free to this IRA and to this IRA
cause we'd split it fifty-fifty.
Now, something I have to note here.
Setting these structures up,
what I'm gonna be talking about,
this is not for you, don't jump on legal zoo.
I mean doom, and try to create these structures.
Cause if you do,
you'll be engaging in a prohibited transaction
'cause you're a disqualified party,
and it will blow your IRA's.
And you don't want to risk doing that.
So always use a qualified professional
who understands how these tools can work
to help you achieve your type of investing goals.
Now, that's one way to do it,
if I just wanted to keep it that way.
Maybe I don't,
maybe I wanna split it with myself.
Another way you could structure this deal,
is forget about this IRA.
You guys can come in 50-50 over here.
I put in 100, this IRA puts in 100,
we buy the property.
Now, 50% is taxable to us.
50% is non-taxable to my spouse's IRA.
So there's lots of ways to do it.
You could do a three way here on top of this.
So, although you can partner here on this.
The problem you run into in structuring this way,
and I see a lot of people make this mistake,
in my opinion, is that they don't
realize they can do more, they can buy more properties.
'Cause right now, collectively we have $350,000.
And if we bought this property for 200,
that means my next property's gotta be under 150.
So maybe you get two properties.
Great, you're gonna create
a little bit of cash flow for yourself.
You know I think there's a better way to do this,
and that is to use leverage.
Why not leverage them down?
Yeah, you can actually borrow
as long as it's non-recourse.
There are lenders out there
that will engage in these types of loans.
That means you don't have to sign personally.
It's an asset-based loan.
You can leverage with your accounts.
Just think what you can do.
So let's say you find properties
that are $100,000 that you wanna invest in.
If you're buying $100,000 properties,
and you're going all in for cash.
Right now, I have enough here to buy three homes.
So you can get three properties.
Well, and actually, what you do have,
is you have enough money here to do 10 properties.
Yup.
$350,000 will buy you 10, $100,000 homes,
if you're using leverage with your accounts.
Again it's a non-recourse note.
Now typically,
these lenders will want 30 to 35% down
in order to do it.
That's why I said ten properties.
And it's quite simple,
the strategy what you're going to do here is,
it starts with creating your L.L.C.'s.
So we would create multiple L.L.C.'s, right?
For the properties I'm not gonna need more than this,
so what we'll create here.
And we buy each of these properties like so.
And into 'em, we will put $35,000.
Now how you come up with that money is it,
partner here, in here or here, in here or here,
here, here, here.
It doesn't matter.
You just gotta make sure
the membership interest that you issue back
match the contributions.
I'mma make it real simple.
Between these deals right here,
we're just gonna go in one-third a piece
on most of them.
We're gonna have a little bit of money leftover,
so this will own one deal all by itself.
But if we did one-third each,
then each entity here would have to put in $11,350,
let's say, whatever that comes up to be.
So they would put in 11,000, 11,000, 11,000,
so we'd get our $35,000 inside of there.
Actually 11,500.
We get our $35,000 inside of there,
and we buy a house.
We do the same thing,
same thing, and you do this out 10 times.
Now you have 10 properties you own
with your same amount of assets.
So rather than holding three, you've leveraged down,
now you're able to obtain 10.
And then as you pay those mortgages down over time,
the income is going to increase from the sale,
from those properties.
And of course the income gets split,
based upon our ownership in the respective L.L.C's.
Now the only problem you have though
with using leverage inside of an IRA,
is generally what is referred to as U.D.F.I.
Or Unrelated Debt-Financed Income.
And in layman's terms it means this.
If you use any type of leverage
to make an investment and you have a qualified plan--
or an IRA here.
Then the amount of the leverage you use,
would need to be multiplied
by the income the investment makes
and you'll pay tax on that.
So in this particular case,
if we were using 70% leverage
and we made $10,000 a year,
for this IRA right here.
Then $7,000 of that income is gonna be taxable.
Let's assume this is making 10 grand,
so you just use 70% times 10,
7,000 is taxable.
Now you still get take your depreciation against it.
So on smaller homes like this,
where there are only $100,000,
is probably not gonna be a big deal for you,
from a tax perspective,
and so I wouldn't worry about that too much.
But if you're looking at larger deals,
and you're not dealing with Roth IRA's.
This is one of the reasons why in my other videos,
I talk about using a Qualified Retirement Plan
Because Qualified Retirement Plans
are not subject to U.D.F.I.
So if you're gonna invest in the syndication,
then you wanna use a Qualified Retirement Plan
if you're not using Roth money to make that investment.
'Cause most syndications are leveraged at 70%.
When they sell, they have a liquidity event,
that can create a tax hit for your IRA.
So on these type of investing,
what I'm showing you is
that you can partner with yourself,
you can partner with your IRA's,
but more importantly,
you can also leverage that down.
So you're able to grow your portfolio much quicker.
This is just one of the strategies we teach
at our three-day tax and asset protection event
for real estate investors.
It's all over the country.
Be sure you check out our website for the next location.
If you have some time,
you can register for it there.
Otherwise, be careful with your investing,
and make sure you're using a professional to set this up.
And I wish you the very best.
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