Direct In-House Decision-Making Power

When you work with us, your application doesn’t get lost in a corporate bureaucracy or sent to a third-party aggregator. As a portfolio lender, we maintain the authority to make all credit decisions internally. This means you receive faster answers, more transparent feedback, and a streamlined process tailored specifically to your unique investment goals and timeline.

Consistent Service Throughout the Loan Life

Many non-recourse loan lenders sell their debt to secondary markets immediately after closing, leaving you with a faceless servicer. We do things differently; we keep and service every loan we make. From the first phone call to the final payment, you deal with the same team that understands your property and your retirement account’s specific needs.

Greater Flexibility for Diverse Property Types

Standard loan providers often have rigid “cookie-cutter” requirements that exclude profitable but non-traditional assets. Because we manage our own portfolio, we have the flexibility to lend on various property types, including single-family rentals, multi-family units, and even agricultural land. We look at the strength of the asset and its potential to generate consistent retirement income.

Protection Through FDIC Insured Stability

Security is paramount when dealing with retirement funds. Choosing an FDIC-insured bank like ours ensures that you are partnering with a regulated financial institution held to the highest standards of safety and soundness. This institutional stability provides peace of mind, knowing that your non-recourse financing is backed by a reputable, long-standing bank with decades of experience.

The right lender makes all the difference in the success of your real estate IRA. At First Western Federal Savings Bank, we are committed to being the premier choice for investors seeking reliable, expert-led financing. Contact us today to discuss your goals; our portfolio-based approach ensures your interests are protected with personalized, professional service.

The post Understanding the Benefits of Working with a Portfolio Lender for Non-Recourse Loans appeared first on First Western Federal Savings Bank.

Limited Personal Liability

One of the most significant benefits of a non-recourse loan is the built-in protection it offers. With this type of loan, the lender’s recourse is limited solely to the investment property itself. This means that in the event of a default, your other personal assets and remaining retirement funds are completely shielded. It allows you to confidently leverage your retirement account investment for a real estate purchase without risking your entire financial future.

Use Your Retirement Funds to Your Advantage

A non-recourse loan allows you to access financing for a real estate acquisition without dipping into your personal savings or other investments. This financial leverage is key to expanding your portfolio and acquiring higher-value investment property that you might not otherwise be able to afford. By using a non-recourse loan, you keep more capital in your retirement account, ready for future opportunities or unexpected expenses.

Simple Process, Common-Sense Lending

We pride ourselves on offering a straightforward and transparent process for our non-recourse loan program. Our team provides clear answers to your questions, ensuring you understand every step. Unlike other lenders, every loan we originate stays with us to provide personalized service throughout the life of your non-recourse loan.

Build a More Resilient Investment Portfolio

For South Dakota retirees, building a resilient and diverse portfolio is crucial. Acquiring real estate through a non-recourse loan diversifies your holdings beyond the stock market, adding a tangible asset with consistent cash flow potential. This diversification is vital for long-term financial security.

As South Dakota’s premier non-recourse loan provider, we believe a strong retirement starts with smart, protected investments. If you are a retiree looking to secure a new investment property, contact First Western Federal Savings Bank in Rapid City to discuss how our non-recourse loans can work for you.

Contact Us

The post The Advantages of Non-Recourse Loans for South Dakota Retirees appeared first on First Western Federal Savings Bank.

To learn how you can leverage your Self-Directed IRA with a non-recourse loan to invest in real estate, then contact the non-recourse loan lenders at First Western Federal Savings Bank. We would be happy to talk to you and discuss your financial goals. Get started with a lender today.

What is a Tax Lien?

A tax lien is a legal claim that is placed on someone’s property as a result of the owner being behind on property taxes. Tax liens are senior to other liens placed on a property, which means that is the municipality responsible for placing the legal claim on the real estate forces liquidation, the tax lien must be satisfied before other claims. Tax liens and tax deeds are then sold by the county at a sale or auction. Each state holds these auctions a bit differently, but in all cases, the tax deeds or tax liens can be purchased within a Self-Directed IRA. Buying tax lien certificates can be a great opportunity for most investors, as the strategy is simple, the returns are great, and they are guaranteed with real assets. 

How Does it Work?

Like any other IRA, you open and fund your account and make your investment. Funds from the IRA are then used to purchase the tax lien from the county. An official document issued by the legal jurisdiction that is responsible for issuing the lien on the property is necessary. Having this document grants an investor conditional ownership of the property’s title in the case that a tax sale happens. 

Absolute Deed

This legal document provides the holder with ownership of a property without restrictions, conditions, or encumbrances. An absolute deed can also be called a deed absolute. 

Encumbrance

An encumbrance is a legal claim on a property, like a mortgage. 

How Do Investors Profit On the Investment?

The owner of the property could redeem the tax lien, which means that they would repay the full lien amount, plus any interest and penalties, to your IRA. If the owner doesn’t pay the lien and interest within a certain amount of time, your IRA could have the right to foreclose and receive the deed to the property. Investors can then sell the property for whatever price they can obtain in the real estate market.

Benefits of Tax Lien Investing

High Interest Rates

High interest rates are usually enough to scare people off, but if you are on the other end of the spectrum, it is the kind of phrase you want to hear. Collecting higher-than-normal interest rates means that you can get returns on your investment that are generous and well worth your time and effort. 

Potential Takeover of the Property

As stated earlier, if the individual with the tax debt cannot pay the bills, it may lead to foreclosure, meaning that the investor can decide whether they want to sell the property for a profit or simply retain the property and enjoy the income generated by renting the property out. 

Passive Investing

While there is plenty of homework that goes into identifying a good tax lien opportunity — not to mention, you’ll want to make sure that you have all of the assets you need to make such an investment — tax lien investing can be highly passive. When your Self-Directed IRA purchases a tax lien, you’re then free to sit back and let the local tax collector deal with the profits for your Self-Directed IRA. You do not have to leave letters or knock on doors; you can simply wait for the interest rates owed to you to come in. 

Final Thoughts

It is important to let your custodian or administrator know that you are utilizing your Self-Directed IRA to make an investment in tax liens. Be sure to do the necessary research required to make an investment such as this, and build a solid support team so you can continue moving forward with confidence. 

If you are interested in exploring the options you have for a Self-Directed IRA, then contact the non-recourse loan lenders at First Western Federal Savings Bank. Our team can walk you through how you can leverage your SDIRA with a non-recourse loan to invest in real estate, which can be an extremely lucrative investment. Contact us today to learn more.

The post Using Your Self-Directed IRA to Invest in Tax Liens appeared first on First Western Federal Savings Bank.

When you are ready to begin leveraging your Self-Directed IRA with other assets, give the team at First Western Federal Savings Bank a call. We would love to meet with you and discuss your financial goals and help you decide if a non-recourse loan is the best avenue for you right now. With a non-recourse loan, you can invest in real estate and take advantage of several other investment options. Give our lenders a call today.

Rollover Funds in Your Current 401(k)

Funds in 401(k)s from previous employers are easy to roll over, but if your 401(k) is current, then it is unlikely that you will be permitted to roll it over. If you left your retirement savings behind, the last thing you want to do is cash it out to avoid severe penalties. Leaving the funds untouched, however, will also prevent you from reaching your investing potential. Before trying to make any adjustments yourself, it is recommended that you consult with your 401(k) plan administrator to discuss funding options.  

Changing from One Account Type to Another

When it comes to rolling over your current retirement plan into a different plan, you’ll want to first ensure that you are able to make the transition and that the desired account is going to provide the benefits that you are looking for. A Roth IRA can accept a rollover from another Roth IRA, or from a designated 401(k) Roth account. A Traditional IRA can be rolled over into a SIMPLE IRA and vice versa, but only after two years from the initial contribution.

The Investment You’re Planning on Making is Prohibited

Self-Directed IRA investment options seem endless. From tax lien certificates and cryptocurrency to water rights, livestock and real estate, Self-Directed IRAs can be invested in many alternatives. Before going through the trouble of opening up a Self-Directed IRA, it would be well worth your time to take a look at the prohibited investments. SDIRAs cannot be used to invest in collectibles like art, antiques, gems, coins, alcoholic beverages and certain precious metals, s-corporations and life insurance. 

You Want to Bend the Real Estate Investment Rules

Real estate is among the most popular asset types that SDIRA holders invest in. The caveats, however, must be noted if you want to add this investment to your portfolio. If you are thinking of investing your retirement funds in a single-family home or vacation property and renting it to a family member, or living there yourself, you should think again. 

Staying in one of the properties you have invested in, or renting it out to a family member are both strategies that are considered prohibited transactions by the IRS. Prohibited transactions can occur for several reasons, often as a result of transacting with disqualified persons. A disqualified person can include you, your spouse, a beneficiary of the IRA, your lineal ascendants, your lineal descendants and their spouses and more.

Final Thoughts

There are several more obstacles that may prevent you from opening an SDIRA that you should discuss with a custodian of your choosing. While we refer to them as “obstacles” here, they are actually IRA regulations and rules that you should be aware of anyway when opening a retirement account with a custodian. Before making a financial decision such as this, it is extremely important that you understand everything about the type of IRA you are interested in so you know what you can do and what you cannot. 

Once you have established your SDIRA and are ready to experience the financial opportunities open to you when you leverage your retirement funds with a non-recourse loan, then speak with the non-recourse loan lenders at First Western Federal Savings Bank.

The post Obstacles That May Prevent You From Opening a Self-Directed IRA appeared first on First Western Federal Savings Bank.

It may feel like the demand for property investment is high while the supply is low — making it difficult to find deals — but what you may not realize is that the Multiple Listing Service (MLS) doesn’t account for every property on the market. There are a lot of properties that are sold each month without ever being listed on the MLS, and these off-market listings, otherwise known as pocket listings, could be a great source of leads for those who know how to find them.

In this article, we will be taking a closer look at how you can find and acquire an off-list property. If you are unfamiliar with how you can use your self-directed IRA to invest in real estate give our non-recourse loan lenders a call today.

What is an Off-Market Property?

An off-market property is what it sounds like. It is not listed for sale or advertised, and can be found through alternative methods, like word-of-mouth, through pre-foreclosures, and could simply be a property that an investor is considering selling, but hasn’t made any grand efforts to do so. While you may find that the definition of an “off-market property” varies widely, one thing remains the same: they are generally hot deals that investors are actively seeking out. 

Finding an off-market deal can mean less competition and a quick sale. But, if they are not publicly advertised, how do you find them?

Finding Off-Market Properties

Real Estate Agents

While real estate agents are most familiar with properties listed in the MLS, they can also be knowledgeable when it comes to finding off-market deals. To increase your chances of finding an off-market property and getting ahead of the competition, it may be well worth your time to contact a Realtor who is familiar with the market you wish to purchase in. 

Since off-market properties are, for better or worse, “exclusive,” you may need to build a repertoire with your agent to prove that you are a serious buyer and investor. Agents will take you more seriously and actually want to bring you deals because they know you can close. 

If you’re really serious, then consider curating a list of the top agents in the market area you wish to buy in, and reach out directly to them asking if there are any off-market listings they may be aware of. Leave your contact information so they can get back to you about future off-market listings if none are available at the moment. 

Get on Buyers’ Lists

Somewhat coinciding with the above point, getting yourself placed on buyers’ lists will keep you informed about properties that are quietly going up for sale. You are more likely to discover these “pocket listing” deals that sellers don’t want to list for fear of alarming tenants or management. 

Direct Mail Marketing

Direct mail marketing can be a highly efficient method of finding off-market real estate deals. You will want to define your target home seller and send out postcards or other ads that express your interest in purchasing their home. This can be helpful because sometimes homeowners don’t even know that they are ready to sell until they are presented with an attractive offer. 

In addition to direct mail marketing, you may want to entertain other methods of marketing that will reach your ideal customer, which may also include bus bench ads. Whatever option you choose, remember that finding off-market deals is an investment in time, and you may not see results right away. 

Network With Wholesalers

A real estate wholesaler typically puts a property, albeit a distressed one, under contract before assigning or reselling the property to another investor within days of purchasing the property. Networking with wholesalers can be a very good way to find investment deals, but keep in mind that since they act as the “middlemen” in the whole process, you’re likely not getting the same deal you would get if you went directly to the source. 

House Flippers

Another great way of finding off-market properties is to talk to investors who are flipping houses. Flippers sell renovated properties all the time, and by keeping in close contact with them, you may be able to secure an off-market property well before anyone else finds out it is available. Keep in mind, however, that you may pay a slightly higher price due to the excellent state of the house which conversely means that you can charge a higher rental rate.

Real Estate Auctions

Auctions can be a great place to pick up off-market deals for a fraction of the original amount. In order to find auction properties, you’ll have to browse through auction websites for deals with potential. Websites like RealtyTrac or Auction.com can be good places for finding a steady stream of off-market properties. A couple of properties that you want to keep an eye out for include foreclosed properties and REOs, or real estate-owned properties. 

The foreclosure process varies from county to county but properties are usually sold “as is” for below-market value prices. When looking for foreclosures, gather as much information about the property before investing. They tend to be excellent opportunities, but foreclosures may have liens or other drawbacks that undermine the overall deal potential. 

REOs, on the other hand, are houses owned by lenders, typically as a result of a  successful foreclosure auction. As before, do your own research on the property and get it properly inspected.

Network with Other Investors

Knowing other investors in your desired market gives you access to hundreds, if not thousands, of properties. This will also put you in the circle of word-of-mouth information that passes from investor to investor. Networking with other real estate investors gives you access to their inventory, their strategy, and whether or not they themselves are looking to sell. The information you gain from working with an experienced investor can put you in a prime position to pick up off-market listings. 

Driving for Dollars

Driving around neighborhoods in an area of your ideal market and looking for deals can be a highly effective method. If you come across a property that looks appealing, get in touch with the owners and make them an offer. If anything, you will at least have gotten the conversation started, and if the homeowners consider selling down the road, you’ll be the first person they call. 

While driving, you will likely come across vacant or distressed properties, mostly because they are the easiest off-market homes to spot. If you find potential leads, jot down the addresses for later. Find the owner of the property and ask about the status of the home, among other questions about the state of the property, and so on. This should help you determine if you can purchase the property and if it would be a good investment. 

Builders and Contractors

Builders and contractors are typically in the know about properties where the homeowner or investor abandoned the job mid-project because they didn’t have the financing to finish the construction. This can be a great opportunity for the investor to swoop in, finish the job, and profit at closing. 

Plus, tradesmen are constantly in touch with people in the industry and can lead you directly to pocket listings in your area. You’ll want to be completely transparent throughout your networking experiences, however much it makes you feel like you’re exposing yourself or your goals. Letting people know that you are an investor looking for off-market properties will build trust as well as the respect of other real estate professionals. 

Let the Lenders at First Western Help

First Western Federal Savings Bank works closely with clients who are serious about leveraging their self-directed IRA with a non-recourse loan to invest in real estate and other alternative assets. If you are interested in pursuing this venture, we would love to get to know you better! Give our lenders a call and set up a consultation where we can learn more about you and your investment goals. Give us a call today!

The post Finding Off-Market Properties to Invest In appeared first on First Western Federal Savings Bank.

Our non-recourse loan lenders take great care in assisting our clients to make educated decisions about their investments. We are passionate about helping our customers find routes that work best for their situation. One of our specialties involves providing non-recourse loans and helping our clients leverage their IRA assets with a non-recourse loan so they can discover a world of investment opportunities. To learn more, give our team a call. 

What You Can’t Do With Your SDIRA

Before diving in, let’s first discuss what you cannot invest in with your self-directed IRA. The IRS outlines Prohibited Transactions, but for clarity, we will discuss it here briefly as well. Prohibited Transactions are transactions that your self-directed IRA is not allowed to make. There are two parts to each of these transactions: the who and the what. The who is the investor and any linear relative, like a child or parent. The what is giving or getting benefit to the account. Here’s an example:

Your father may not make a donation, cash or work-related, to your self-directed IRA, or personal benefit. 

In self-directed IRAs, all contributions and Required Minimum Distributions must be made to the IRA itself, and not to the IRAs’ checking account. But to keep it simple, here are some examples of what you cannot do as a self-directed IRA holder: 

• Borrow money from the IRA
• Sell, exchange, or lease property to the IRA
• Receive compensation for managing property held by the IRA
• Use the IRA as security for a loan
• Transfer IRA money to disqualified persons
• Extend credit on the IRA to disqualified persons
• Furnish goods or services to disqualified persons
• Allow disqualified persons to use plan assets 

Understand Asset Allocation

Even the words “asset allocation” may sound complicated, but they are not. They simply mean how your money is divided among different types of investments. On a larger scale, that means stocks, bonds, and cash. On a smaller scale, it gets specific and can mean large-cap stocks versus small-cap stocks, corporate bonds versus municipal bonds, and so on. If you invest $10,000 in an IRA account and $6,000 of it is in stock funds and $4,000 is in bond funds, your asset allocation is 60/40. 

Consider Your Tolerance for RIsk

When it comes to understanding investing, you need to first and foremost understand how much risk you are able to tolerate. You want to take enough risk that your money will grow, but not so much that you’ll bail out or lose all your hair when the market gets rocky. One rule of thumb is to subtract your age from 100 (or 110 if you want to entertain more risk). The resulting number is the percentage of your portfolio that should be allocated toward stocks. 

Under this rule, if you’re 30, you’d direct 70% to 80%. You may find that you want more or less equity exposure than the rule dictates, so it’s fine to use as a starting point and then edge the numbers around until they suit your needs.

Your age matters because you generally want to take more risk when you’re young and then taper down as you inch towards retirement. That doesn’t mean you shouldn’t invest in stocks in retirement, just that people may choose to dial it back a bit so there’s a greater fixed-income allocation from which to take distributions.  

Understand Your Financial Situation

If your goal is to retire in 20 years, your ability to take risks in a retirement account would be higher than in the account you use to pay your monthly bills. Your retirement account has time to recover from setbacks, and any immediate losses could be recovered. In your bill-paying account, a loss could very well jeopardize your ability to pay rent next month. If the outlook for your financial situation seems uncertain, it can make sense to have a relatively lower allocation to stocks. 

Get Real About the Type of Investor You Are

If you don’t have the time, expertise, or interest it takes to choose investments and maintain an appropriate mix of investments in your IRA you may want to consider a professionally managed target-date or asset allocation fund. 

Target date funds let an investor pick the fund with the target year closest to their expected retirement. The target-date fund manager then selects, monitors, and adjusts the investment mix over time. Asset-allocated funds can be another simple way to diversify your portfolio using a single fund. In these funds, the manager sets and maintains a fixed asset mix. 

For those IRA investors that are doing it on their own, a diversified mix of investments is important. That way, a portfolio isn’t dependent on any one type of investment, although diversification does not ensure a profit or guarantee against loss. If you want to do it yourself, consider funds that hold a mix of investments in companies both big and small and in different industries and sectors.

Consider Mutual Funds for the Base of Your Portfolio

You might be tempted to fill your IRA with individual stocks and bonds, but it is much easier to get diversification and, in the long-run, better results from a portfolio composed of mutual funds or exchange-traded funds, otherwise called ETFs. 

Index funds are among our favorite investment options. Through one of these funds, you’re buying a basket of investments rather than the stock of just one company. An S&P 500 index fund, for instance, invests in some of the largest U.S. companies and is classified as a “large-cap” fund for the reason (“cap” refers to “capitalization,” which refers to the valuation of the companies). 

In most cases, you’ll want to allocate more of the equity portion of your portfolio to the biggest asset classes, like large-cap funds; and less to smaller classes, like small- and mid-cap funds. Choose index funds and ETFs to meet your asset allocation, with the help of a fund screener. This is a tool offered by many online brokers that can help you sport by expense ratio, fund type, performance, and other factors. 

Create a Diverse Portfolio With the Help of First Western

Once you have chosen an IRA custodian and have established your SDIRA, then reach out to the non-recourse loan lenders at First Western Federal Savings Bank. Our non-recourse loan lenders take great care in providing our clients with important information so they can make informed decisions about their investment opportunities. To learn more about how to leverage your Self-Directed IRA with a non-recourse loan to invest in rental properties, give our team a call today!

The post A Beginners Guide to Investing with IRA Assets appeared first on First Western Federal Savings Bank.

Below we are going to discuss a few important considerations of purchasing a rental property with your self-directed IRA. Of course, you can always give our team of non-recourse loan lenders a call to learn more about how you can leverage your self-directed IRA with a non-recourse loan to invest in real estate. We pride ourselves on providing transparent and relevant information that helps our clients make educated decisions. Give us a call today. 

Do Your Research

Before making any serious moves on your investment, it is imperative that you do your research and diligence on the real estate asset your IRA will be purchasing. Real estate can be a complex investment that involves various components, making thorough understanding crucial. Be more than familiar with the specific real estate asset your IRA will be purchasing, like its locality, the costs involved, and any foreshadowed risks. 

So You Understand, Your IRA Owns the Property, Not You

The purchase contract to buy the real estate must be in the name of the IRA and the deed to the property will be in the name of the IRA. The IRA funds, including the earnest money deposit, will come from the IRA account. Keep in mind that the IRA owner is not buying the property, so the contract should not be in their personal name, nor should the IRA owner’s personal funds be used. 

Plus, any improvement costs and expenses for the IRA-owned property must be paid by your IRA and not personally by the IRA owner. Conversely, when there is rental income on the property, or when the property sells for a gain, then that income goes back into the IRA. But, one of the biggest perks of investing with an IRA is that there is no tax when the IRA makes money. Consequently, the rental income and the income when you sell the property is not taxable. 

Know Your Custodian Options

When opening a self-directed IRA, you may find that most traditional banks and financial institutions do not allow IRA holders to buy real estate with their IRA since it does not generate any profit for the institution. There are, however, a wide selection of self-directed IRA custodians throughout the nation that do allow their clients to make alternative asset investments, like real estate, using retirement funds. 

When purchasing real estate with a self-directed IRa, an IRA holder generally has two options: “Custodian Controlled” Self-Directed IRA or “Checkbook Control” Self-Directed IRA. “Custodian Controlled” self-directed IRAs allow the IRA holder to direct the IRA custodian to invest the IRA funds into traditional, as well as alternative asset investments. With a “Checkbook Control” self-directed IRAs, on the other hand, a special purpose limited liability company is established that would allow the IRA holder to act quickly when the right investment opportunity presents itself cost-effectively and without IRA custodian delay. 

Your IRA Cannot Purchase Property Owned by You or a Disqualified Person

Your IRA cannot purchase a property that you currently own. The IRS doesn’t allow transactions that are considered “self-dealing” and they don’t allow your self-directed IRA to buy property from or sell the property to any disqualified person, including yourself, certain family members, and others. 

The IRS lists disqualified individuals as yourself, your beneficiary, your fiduciary, and members of your family, like your spouse, ancestor, lineal descendant, and any spouse of a lineal descendant. 

You Cannot Have “Indirect Benefits” from Property Owned by Your Self-Directed IRa

Your self-directed IRA cannot be used to purchase a vacation home for you to occasionally use, and you cannot rent office space for yourself in a building that your self-directed IRA owns. Your investment in real estate is not intended to benefit you, or any other disqualified person, by providing shelter. If your IRA engages in a prohibited transaction, it is considered an “indirect benefit.” 

These are only a few things you need to keep in mind before you consider investing in real estate — we’ll be covering several more in the future! Keep an eye out for the next blog that contains more information about things to know when you use your self-directed IRA to invest in real estate.

One of the best resources you have at your fingertips is our team at First Western Federal Savings Bank! Our team of non-recourse loan lenders will walk you through how you can leverage your self-directed IRA with a non-recourse loan to invest in real estate. To learn more, give us a call.

The post Things to Know When Using Your SDIRA to Invest in Real Estate appeared first on First Western Federal Savings Bank.

Today, we will be discussing why multi-family real estate investments are so popular in IRAs, and why you may want to consider the opportunity as your next investment. If you already have a Self-Directed IRA and want to learn more about how you can leverage that with a non-recourse loan to invest in real estate, then speak with the lenders at First Western Federal Savings Bank today! 

Why Multi-Family Real Estate is on the Rise

Millennials, the second-largest generation, are becoming a force that is changing the real estate dynamic. A majority of Millennials are in their late 20s and early 30s, and many of them are unmarried and delaying home-ownership, looking instead for long-term apartment rentals. Millennials are the primary demographic turning to multi-family rentals, specifically in large cities. There are a few factors contributing to this, including:

• Residency in a larger city means being closer to work and having access to public transportation
• Access to amenities, such as on-site parking, fitness centers, etc. 
• Social connectivity

But, it doesn’t start and end with Millennials, as Baby Boomers, the largest and oldest generation, are also downsizing. That’s right, the generation that popularized getting married young and buying a house are making the transition to apartment living. Baby Boomers who can care for themselves prefer to stay in their own home rather than in a retirement community and are likely embracing the next stage in their lives, which could mean leaving their empty nests in the suburbs and embracing city life and apartment living. 

Why Invest in Multi-Family Real Estate With Your SDIRA

Real estate is a tangible and secure asset, and as financier Russel Sage once said “Real Estate is an imperishable asset, ever-increasing assets. It is the basis of all security and about the only indestructible security.”

Real estate often grows faster than a lot of other traditional investments, and investing in multi-family properties with your Self-Directed IRA gives you a more proactive approach and far greater potential in building retirement wealth. Let’s now discuss the benefits of such an investment!

Grow Your Portfolio In Less Time

Multi-family real estate is suitable for property investors who wish to build a relatively large portfolio of rental units. Acquiring a 20-unit apartment building is a lot easier and much more time-efficient than purchasing 20 different homes. The property investor doesn’t need to work back and forth with 20 different sellers, conduct 20 different home inspections, and acquire 20 separate loans for each property. Multi-family real estate investments allow investors to avoid all of that hassle and hair-pulling. 

You Earn Tax-Sheltered Income for Retirement

Self-Directed IRAs allow account owners to invest in alternative assets, and they get to choose which investments to make. When you invest in real estate with your IRA, all of the income you make, including capital gains from a property’s sale, is directed straight into your IRA. If you invest with a traditional IRA, that income is tax-deferred and you’ll pay it on distributions when you retire. Roth IRAs earn tax-free income.

Greater Cash Flow

More rentals mean more cash coming in on a monthly basis. All income is deposited directly into your IRA on a tax-sheltered basis, which provides two benefits: more cash to reinvest and funds to cover any maintenance issues. Additionally, multi-family investments provide multiple streams of income, not just one as you would have with a single-family rental. If you continually upgrade your property, say with a pool, individual storage rooms, garage, or safe laundromat area, you will likely attract more long-term tenants, and may even get to charge more for rent, which means more money for you.

Fewer Vacancies, or None At All

When a tenant moves out, you won’t have to worry about your income coming to a screeching halt. This largely depends on the location and desirability of your multi-family property, but empty units tend to fill up quickly, especially if you have a property in a desirable area. If you have multiple renters across multiple units, you still have income rolling in, which is always a good thing.

Bottom Line

When you invest in multi-family real estate with your Self-Directed IRA, you can also benefit from valuable tax advantages, including:

• You can eliminate capital gains taxes
• You can eliminate income taxes
• You can eliminate dividend taxes
• There will never be any taxes to pay on the profits from the investments
• You don’t have to worry about withdrawal tax penalties

Much like stocks, real estate allows for one to be successful through several different strategies. Investors who take advantage of opportunities coming in the form of multi-family property may experience access to easier and better financing opportunities, the ability to quickly grow your portfolio, and the luxury of hiring a property manager. 

Get Started Now With First Western Federal Savings Bank.

If you already have a custodian and a Self-Directed IRA, then give the non-recourse loan lenders at First Western Federal Savings Bank a call to learn how to leverage your assets to invest in real estate. We look forward to discussing your goals with you and helping you save for retirement!

The post Investing in Multi-Family Real Estate appeared first on First Western Federal Savings Bank.

Socially responsible investing or impact investing enables you to invest in businesses that support causes that you believe in. You can also make conscious decisions not to invest in businesses that produce products or provide services that are involved in activities that conflict with your beliefs. 

Today, we will be discussing socially responsible investments that you can make with your Self-Directed IRA so you can make a positive impact on society while also positively impacting your investment portfolio. If you already have a chosen custodian and a Self-Directed IRA, then speak with our non-recourse loan lenders to discuss how you can leverage your assets to invest in real estate. We look forward to meeting with you and discussing your goals. 

Green Energy

You can use your Self-Directed IRA to invest in all sorts of alternative energy solutions, from wind turbines and hydro-technology to nuclear energy. Investing in these growing sectors is a great way to help the environment while still making an investment for your future. You aren’t limited to the typical investments either — renewable energy is another growing sector. This leaves you with a number of different options and companies to consider when thinking about investing in green energy.  

Clean Energy Bonds

These bonds may be issued by companies looking to complete alternative energy projects through municipalities or other public sources. Clean energy bonds can also be issued by alternative energy consulting firms looking for a cost-effective way to raise capital for various projects. 

Raw Land and Energy Efficient Real Estate

You can invest in raw land or energy-efficient properties to get your foot in a rising real estate market without contributing to a rising carbon footprint. More buyers and renters are taking eco-consciousness into account when picking a home, so those options are on their way to becoming standard. You can choose between buying space to develop, updating an existing property, or investing in a pre-existing eco-property. 

Address the Needs of Existing Real Estate and Communities

There are communities across the United States that are severely underfunded, lacking the support and funds to develop better buildings and amenities that are tailored to the specific needs and unique assets of that community. 

Urban Juncture

Urban Juncture is “working to develop commercial real estate and related enterprises that address the needs of under-served communities.” Putting your money towards start-ups that have the mission of providing job opportunities to residents, quality goods and services to serve existing and secure new residents, and unique events and attractions to attract visitors, can be an extremely impactful way to invest your money.

Kachuwa Impact Fund

Kachuwa Impact Fund describes itself on its website as “an investment cooperative and public benefit corporation focused on owning and operating “impact real estate” and investing in privately-held “impact companies.” Additionally, the fund states that it “is similar to a Real Estate Investment Trust (REIT) combined with a mutual fund whose diversified holdings have a positive impact on society and the environment. 

Private Placements/LLCs

You can use your self-directed IRA to invest in companies with a sustainable mission you believe in. Eco-investments are no longer limited to just green energy, though, as there are tons of companies developing technology and working towards a sustainable future in every sector. If you have a personal interest like clean water access for all or biodegradable plastics, there are more than a handful of choices out there. 

Terracycle

Terracycle is developing some innovative programs and products to help address the issue revolving around the U.S. scrambling to deal with recyclable materials piling up. Terracycle claims to be a social enterprise that “reuses, upcycles, and recycles waste instead of incinerating or landfilling it.” They state that by doing so, the company is “moving waste from a linear system to a circular one, allowing it to keep cycling in our economy.” 

Why Choose Impact Investing?

Impact investing has grown dramatically in the past decade. The amount of money held in ESG — Environmental, Social, and Governance — assets increased by 274% between 2021 and 2018, rising from $3.1 trillion to $11.6 trillion during that time. More than half (57 percent) of U.S. investors now believe that the impact of their investments on society is either very or somewhat important.  

The growth of impact investing is driven largely by Millennials and members of Generation Z who want to make a difference in the world with their investment dollars. According to the American Century Investments study, 65 percent of Millennials in the U.S. have shown heightened interest in impact investing, compared to the 55 percent of Generation Xers and the 47 percent of Baby Boomers. 

Basically, these findings reaffirm that impact investing continues to be on an upward trajectory across all age groups, but tell us that Millennials are leading the way in impact investing. 

Impact Investing With Self-Directed IRAs

A Self-Directed IRA can be a great vehicle for building your retirement savings in a tax-advantaged environment while making a meaningful difference. Typical IRAs with a brokerage firm, bank, or mutual fund company offer a limited and indirect way to choose ESG funds, but self-directed IRAs open up more ways for socially conscious investors to channel an impact in causes and issues that matter. 

Get Started With First Western

Responsible investing drives better outcomes for investors, our communities, and the planet. By embedding ESG factors into investment research, you can diversify your portfolio, contribute to a better tomorrow, and help bolster your retirement savings. To learn more about how you can leverage your Self-Directed IRA with a non-recourse loan, get in touch with our non-recourse loan lenders to learn more.

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Paying Unnecessary Penalties on Early Distributions

The IRS 10% penalty tax on early distributions can be avoided using several methods. Forbes outlines one of them — making a series of substantially equal payments. This distribution method leverages your distributions, which are made as part of a series of substantially equal periodic payments over your life expectancy or the life expectancies of you and your designated beneficiary. It is referred to as Section 72(t) and it will allow you to avoid penalties on IRA distributions even if you are younger than 59 ½.

The IRS allows you to set up this plan using one of three methods:

• The Required Minimum Distribution method – This method uses the IRA owner’s life expectancy and makes distributions of the account balance over that time frame. The annual payment is redetermined each year since both the account balance and the owner’s life expectancy will be slightly less.
• Fixed Amortization method – This method involves the IRA account balance over a specified number of years equal to life expectancy, and at an interest rate of no more than 120% of the federal mid-term rate.
• Fixed Annuitization method – This method involves applying an annuity factor to the IRA account balance to produce a monthly payment. The annuity factor is calculated based on an IRS mortality table and an interest rate of no more than 120% of the federal mid-term rate.

Each of these three methods will produce a slightly different payment distribution, though each ultimately accomplishes the same goal, which is to spread the distribution payments over the IRA owner’s lifetime. Once established, the penalty tax on early distribution will be waived. 

Not Taking Advantage of a Roth IRA

A Roth IRA is a potentially valuable retirement resource. Not only are qualified withdrawals tax-free, but Roth IRA distributions do not impact the taxability of Social Security, and Roth accounts pass to beneficiaries tax-free as long as the account is at least five years old. Roth IRAs are the only qualified savings plan that do not require you to take required minimum distributions beginning at age 70 ½ meaning that you can continue to allow your Roth IRA to grow until you are ready to begin taking money out of it. There are income limits that affect eligibility for a Roth IRA, so if you are interested in going this route, we recommend speaking with your investment professional or financial planner. 

Not Seeking Advice on an Inherited IRA

Inheriting an IRA can be a great thing, depending on the circumstances — but it is not as simple as it sounds. If you inherit an IRA, you’ll have to be prepared to move quickly.  The inheritor will have a few different options for what they can do with the assets depending on their relationship to the deceased, and can inadvertently trigger a big tax bill by tapping the IRA assets without exploring all of the options. If you inherit IRA assets, we highly recommend getting advice from a financial or tax advisor before taking action. 

When you inherit an IRA, you will need to plan for taxes. Generally, a non-spouse-designated beneficiary has 10 years to liquidate an inherited IRA. Timing the distributions to match low tax years, or keeping distributions low enough to avoid higher tax brackets can potentially lower the total tax liability. Some beneficiaries, including your spouse, your minor children, disabled persons, chronically ill beneficiaries, and beneficiaries who are not more than 10 years younger than you can take life expectancy payouts. 

Furthermore, if you do inherit an IRA, you will want to be crystal clear of the important deadlines included. Estate taxes, if applicable, are due nine months after the IRA owner’s death. This same deadline applies to beneficiaries who wish to disclaim IRA assets. By September 30 of the year following the year of the owner’s death, the beneficiary whose life expectancy will control the payout period must be identified. IRA beneficiaries who want to receive distributions over a life expectancy must begin taking required distributions by December 31 of the same year. 

Not Using a Direct Transfer

There are two ways to move funds between IRAs: indirect rollover and direct transfer. In an indirect rollover, you withdraw funds from one IRA and deposit the same amount into another IRA. This must be completed within 60 days and can be done only once a year. Also, a non-spouse beneficiary cannot have an indirect rollover. The failure to follow these rules could result in a taxable distribution. In a direct transfer, a financial institution issues payment directly to another financial institution, which is not subject to the 60-day/once-a-year rules regarding indirect rollover. 

We hope you found this information very useful as you move forward with your retirement planning. Of course, when you do open an IRA account, you should always ask any questions you may have and seek out resources that break down every single detail that you need to know about owning an IRA account. Once you can confidently navigate holding an IRA, then contact our non-recourse loan lenders to learn more about how you can leverage your IRA assets with a non-recourse loan to invest in real estate. Give us a call today, we would love to work with you!

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