lending & borrowering out of your ira

52
Either a Lender or a Borrower Be – Private Financing with Self-Directed IRAs

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This presentation talks about creating notes with your IRA. It shows you how a century old investment strategy can get you double digits returns with the safety and security of a tangible asset to collateralize the note. This is how Banks make money and you can too with your IRA.

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Page 1: Lending & Borrowering Out of Your IRA

Either a Lender or a Borrower Be – Private

Financing with Self-Directed IRAs

Page 2: Lending & Borrowering Out of Your IRA

Disclaimer

The Entrust Group, Inc. and its franchisees ("Entrust") do not provide investment advice or endorse any products.

All information and materials are for educational purposes only. All parties are encouraged to consult with their attorneys, accountants and financial advisors before entering into any type of investment.

Page 3: Lending & Borrowering Out of Your IRA

Who is The Entrust Group?

LARGEST NETWORK of Self-Directed TPAs.

NO CONFLICTS OF INTEREST with how you want to invest.

WITHOUT LIMITS imposed by other custodians.

OVER 25 YEARS managing self-directed accounts!

More than $5 Billion in assets under management!

Page 4: Lending & Borrowering Out of Your IRA

What is a “Self-Directed” IRA?

An IRA in which the IRA owner directs all investments in the account. There is no legal distinction between a “self-directed IRA” and any other IRA except with a truly self-directed IRA the account agreement allows the broadest possible spectrum of investments.

Page 5: Lending & Borrowering Out of Your IRA

IRSIRA Investor

Tax Savings

What are the benefits of self-direction?

Page 6: Lending & Borrowering Out of Your IRA

DiversificationDiversification

What are the benefits of self-direction?

Page 7: Lending & Borrowering Out of Your IRA

Social investing! It’s midnight. Do you Social investing! It’s midnight. Do you know where your IRA dollars are?know where your IRA dollars are?

What are the benefits of self-direction?

Page 8: Lending & Borrowering Out of Your IRA

Take control of your retirement!Take control of your retirement!

What are the benefits of self-direction?

Page 9: Lending & Borrowering Out of Your IRA

Invest in what you know best!

What are the benefits of self-direction?

Page 10: Lending & Borrowering Out of Your IRA

What types of plans can be self-directed?

• Traditional IRA

(including rollovers)

• Roth IRA

Page 11: Lending & Borrowering Out of Your IRA

Employer plans:

• SEP IRA

• SIMPLE IRA

• Individual 401(k)

• Roth 401(k)

What types of plans can be self-directed?

Page 12: Lending & Borrowering Out of Your IRA

Special plans:

• Coverdell

Education Savings

Account (ESA)

• Health Savings

Accounts (HSA)

What types of plans can be self-directed?

Page 13: Lending & Borrowering Out of Your IRA

ALL of the above accounts can be self-

directed!

What types of plans can be self-directed?

Page 14: Lending & Borrowering Out of Your IRA

What can I invest in with a self-directed IRA?

Page 15: Lending & Borrowering Out of Your IRA

Investment Choices

• Real Estate, including foreign property

• Real Estate Notes

• Options

• Secured/Unsecured Notes

• Limited Liability Companies

• Limited Partnerships

• Private Stock

• And a whole lot more……

Page 16: Lending & Borrowering Out of Your IRA

Private or Hard Money Lending

Page 17: Lending & Borrowering Out of Your IRA

Quote of the Day

“Neither a borrower nor a

lender be; For loan oft loses

both itself and friend, And

borrowing dulls the edge of

husbandry.”

- William Shakespeare, English

playwright, in Hamlet

Page 18: Lending & Borrowering Out of Your IRA

Quote of the Day

“Shakespeare was

WRONG!”- H. Quincy Long, President of

Entrust Retirement Services, Inc.

Page 19: Lending & Borrowering Out of Your IRA

Jack Brown has $100,000 in an IRA and wants to loan $70,000 to an investor as a first mortgage on a $100,000 investment home.

• 70% LTV (loan to value)• 12% interest rate• Interest only payments with

balloon payment in 1 year• Minimum loan term of 3 months• 3% origination fee• Buyer pays all costs for legal and Entrust fees

Case Study: Real Estate Note

Page 20: Lending & Borrowering Out of Your IRA

1. Jack completes a Buy Direction Letter for the new note.

2. Title company or a lawyer of Jack’s choosing prepares note and closing docs showing the IRA as the “Lender”:

Entrust Retirement Services, Inc. FBO Jack Brown IRA #12345-11

3. Jack approves all closing docs and Entrust wires funds to title

company.

4. The deed of trust is recorded and held by Entrust, along with the original note and closing documents.

Case Study: Real Estate Note

Page 21: Lending & Borrowering Out of Your IRA

Key Points to Remember

• You cannot loan your IRA money to yourself or any other disqualified person.

• You and the borrower are free to set your own loan terms.

• IRAs can loan money unsecured or secured by assets other than real estate, such as equipment or mobile homes.

Case Study: Real Estate Note

Page 22: Lending & Borrowering Out of Your IRA

People Restrictions on IRAs

Disqualified Persons = Those persons who cannot benefit from or enter into transactions with your IRA or other plan.

Page 23: Lending & Borrowering Out of Your IRA

Fiduciary “F”(includes IRA Owner)

Member of F’s Family

Corporation “C” if F owns

(directly or indirectly)50% or more of vote or

value of stock

Partnership “P” if F owns

(directly or indirectly)50% or more of capital or profits

interest in P

Trust or Estate “T” if F owns

(directly or indirectly)50% or more of

Beneficial interest in T

10% or more

partner or joint

venturer with CF’s Spouse

F’s Ancestor

F’s LinealDescendant “LD”

LD’s Spouse

Officer or Director of C

Highly Compensated

Employee of C (10% or more of

wages)

10% or more shareholder of C

Person with management

or administrative functions of P

Highly Compensated

Employee of P (10% or more of

wages)

10% or more partner of P

Trustee of T

Highly Compensated

Employee of T (10% or more of wages)

10% or more beneficial interest

owner of T

10% or more

partner or joint

venturer with P

10% or more

partner or joint

venturer with T

IRA

Page 24: Lending & Borrowering Out of Your IRA

Lending Money

Prohibited Transaction RestrictionsProhibited Transaction RestrictionsAny Any direct or indirectdirect or indirect

Mr. IRA Disqualified Person

Page 25: Lending & Borrowering Out of Your IRA

You CAN combine your IRAs You CAN combine your IRAs with other IRAs to make a loan.with other IRAs to make a loan.

Partnering IRAs to Make a Loan

Page 26: Lending & Borrowering Out of Your IRA

Usury

What’s a little usury among friends?

Page 27: Lending & Borrowering Out of Your IRA

What is the effect of usury?

Is there a usury prison?

Page 28: Lending & Borrowering Out of Your IRA

Usury

Usury rules in Texas:

1. 18% either contracted for, charged or received.

2. Penalty for usury – 3X excess interest plus attorney’s fees for commercial transaction.

3. Late charges (not to exceed 5%), prepayment penalties and return check charges are NOT interest.

4. Points collected by lender up front ARE interest.

Page 29: Lending & Borrowering Out of Your IRA

Foreclosure

Worst Case Scenario

Page 30: Lending & Borrowering Out of Your IRA

Foreclosure

Best Case Scenario

Page 31: Lending & Borrowering Out of Your IRA

Foreclosure

Foreclosure procedure in Texas:

1. Send notice of default and demand to cure default – 20 days homestead, unclear for investor loans, but common to send 20 day notice anyway.

2. Send notice of acceleration and copy of foreclosure posting at least 21 days prior to foreclosure.

3. Post foreclosure notice on notice board at county courthouse and file in the real property records.

4. Foreclose on first Tuesday of each month.

Note: No redemption rights in Texas!

Page 32: Lending & Borrowering Out of Your IRA

Lender’s Perspective

Things to consider from a lender’s perspective:

1. Do not loan on something you wouldn’t be excited to own if the borrower defaults.

2. Generally, do not advance funds for repairs until the repairs are done, and inspect before advancing funds.

3. Do not loan to someone you would feel uncomfortable foreclosing on!

Page 33: Lending & Borrowering Out of Your IRA

Lender’s Perspective

Things to consider from a lender’s perspective:

4. If the loan goes into default, do not delay – take action immediately!

5. Collect interest monthly so you will know if the borrower is getting in trouble.

6. If you are unsure about a loan, hire a professional to help you evaluate the deal.

Page 34: Lending & Borrowering Out of Your IRA

Lender’s Perspective

Things to consider from a lender’s perspective:

7. Get title insurance for your loan!

8. Verify that hazard and, if necessary, flood insurance is in place naming the lender as an insured.

9. Insist on evidence that property taxes are paid whenever they become due.

Page 35: Lending & Borrowering Out of Your IRA

• Loan Amount: $150,000.00

• LTV (Loan to Value): 50%

• Interest Rate: 12% per year Interest Only

• Term: 24 Months with 2 Optional Extensions

• Discount Points: $6,000 (4%)

• Lien Position: 1st Lien

Case Study – Hard Money Loan

Page 36: Lending & Borrowering Out of Your IRA

Does IRA lending work?

• Balance of Account 9/25/2006: $64,960.09

• Anticipated Balance 9/25/2009: $90,259.23

• Dollar Increase in 36 Months: $25,299.14

• Percentage Increase in 36 Months: 38.95%

Page 37: Lending & Borrowering Out of Your IRA

Borrower’s Perspective:Making Money NOW

O.P.I.OTHER PEOPLE’S

IRAs

Page 38: Lending & Borrowering Out of Your IRA

Create your own private financing source

Borrower’s Perspective:Making Money NOW

Page 39: Lending & Borrowering Out of Your IRA

Partnering with OPIPartnering with OPI

Borrower’s Perspective:Making Money NOW

Page 40: Lending & Borrowering Out of Your IRA

Things to consider from a borrower’s perspective:

1. Borrowing private money is all about one thing – your relationship with the lender!

2. Take the lender’s temperature when it comes to risk tolerance and how desperate they are for the income.

3. Make the process painless for your lender! If done within an IRA, learn the IRA custodian’s procedures so that all the lender has to do is sign the buy direction letter.

4. Protect your lender’s interest at all costs, even if it means you lose money on the deal!

Borrower’s Perspective:Making Money NOW

Page 41: Lending & Borrowering Out of Your IRA

There are TRILLIONS of dollars in retirement accounts!

Borrower’s Perspective:Making Money NOW

Page 42: Lending & Borrowering Out of Your IRA

At every gathering there are MILLIONS of dollars available for investment.

Borrower’s Perspective:Making Money NOW

Page 43: Lending & Borrowering Out of Your IRA

“Let me help you recover your stock market losses with loans secured by real estate.”

Borrower’s Perspective:Making Money NOW

Page 44: Lending & Borrowering Out of Your IRA

Emphasize that as a real estate investor you are Emphasize that as a real estate investor you are helping the economy recover by improving helping the economy recover by improving property values and that their investment is a property values and that their investment is a socially responsible one.socially responsible one.

Borrower’s Perspective:Making Money NOW

Page 45: Lending & Borrowering Out of Your IRA

Provide the prospective lender with the details Provide the prospective lender with the details of the transaction, including your price and of the transaction, including your price and comparable sales to show value.comparable sales to show value.

Borrower’s Perspective:Making Money NOW

Page 46: Lending & Borrowering Out of Your IRA

Have a “success book” available!Have a “success book” available!

Borrower’s Perspective:Making Money NOW

Page 47: Lending & Borrowering Out of Your IRA

Borrower’s Perspective:Making Money NOW

• Interest Rate: 15%

• Points Charged: $0

• Entrust Fees (Paid by Borrower): $370

• Attorney Fees (Paid by Borrower): $450

• Minimum Loan Term: 3 months

Page 48: Lending & Borrowering Out of Your IRA

Borrower’s Perspective:Making Money NOW

Results:

• Interest Paid to IRA: 3.75% in 6 weeks

• Profit made by Borrower: $20,000

• Amount of Borrower’s Money Used: $0

Page 49: Lending & Borrowering Out of Your IRA

Borrower’s Perspective:Making Money NOW

• Appraised Value: $120,000

• Loan Amount: $67,000

• Escrow for Repairs: $5,000

• Interest Rate: 10% on $72,000 = $7200/yr

• Loan Term: 3 years

• Owner Financed: $120,000 @ 8% = $9600/yr

Page 50: Lending & Borrowering Out of Your IRA

Case Study - Shared Appreciation Mortgage

• House can be bought as is for $70,000, needs minor fix-up for $3,000, and is worth around $100,000.

• Taxes and insurance are around $250/month.

• Tenant with long term lease is in the house for $900/month.

• Property will not cash flow with a $75,000, 12% interest-only loan (-$100/month).

Page 51: Lending & Borrowering Out of Your IRA

Case Study - Shared Appreciation Mortgage

The solution:

• The borrower had his financial friend’s IRA loan him $75,000 at 6% interest with a shared appreciation mortgage.

• The borrower walked away from closing with cash in his pocket for repairs, a property which will now cash flow at positive $275/month, and one-half of the equity.

Page 52: Lending & Borrowering Out of Your IRA

How can I get more information?

www.EntrustTexas.com

P: 214.800.3488 F: 800.320.5950

[email protected]

For More Information:For More Information: