Retirement Industry Trust Association bi-annual Conference in Las Vegas
First Western Federal Savings Bank sponsored the Retirement Industry Trust Association (RITA) Conference recently held on October 27-28, 2016 in Las Vegas, Nevada. The Retirement Industry Trust Association (RITA) is the formal association of regulated Banks and Trust Companies in the U.S. that offer self-directed IRAs to clients who want to hold alternative assets, such as real estate inside of their IRAs. RITA is essentially the voice of those trust companies in the U.S. and provides a forum for companies to interact and exchange ideas, encourage “best practices” within the industry, and to project and protect their legislative interests to Congress, the IRS, and the Department of Labor, who regulates self-directed IRAs.
The Self Directed IRA Summit (www.sdirasummit.com) in Scottsdale, Arizona on May 7th was an awesome event. In case you missed it, Mat Sorensen of KKOS Lawyers put together a full day of comprehensive learning on Self Directed IRA's, Solo 401(k)'s, and LLC's as the structure for self directed plans investing in real estate and alternative assets. Topics included Maximizing Your Self Directed Retirement Contributions, Prohibited Transactions, Checkbook Control and how to properly structure an IRA/LLC or Solo 401(k)/LLC.
Self Directed IRA Summit is an exciting learning event upcoming in Scottsdale, Arizona on May 7th, 2016. Mat Sorensen, attorney, author, and expert on IRA/LLC and Solo/401K plans is having a great day of learning on the topic of Self Directed IRA's and Solo/401K's at the McCormick Ranch in Scottsdale. The conference will cover all aspects of self directed IRA's, 401K's and IRA/LLC and most importantly from our perspective,how to leverage an IRA with a Non Recourse Loan to purchase investment real estate. I will co-present this topic with Mat at the 3:15 afternoon session.
Debt Service Coverage Ratio (and what it means for your investment property)
Debt Service Coverage Ratio (DSCR) is a simple way of measuring the ability of an investment property to pay all its operating expenses and any debt that may be against the property. When leveraging your investment property with a Non Recourse Loan it is important to know if the property is capable of covering all its expenses from the rental income produced. This is measured by taking the gross rental income minus all typical operating expenses such as taxes, insurance, vacancy (we use 7% annually) maintenance, utilities, HOA fees, and management costs. The figure left after subtracting these operating expenses from the income produced is called Net Operating Income. The Net Operating Income or NOI is then divided by the principal and interest payments and that equation is a ratio of the NOI divided by the Principal and Interest.
First Western Federal Savings Bank has been financing “Vacation Homes” for rent all across the country. Because of our customer’s success and repeat business, I attended the Home Away VRBO, www.vrbo.com, and www.Homeaway.com, summits in Atlanta and Denver over the past few months. I was fortunate to meet many vacation owners and hear their success stories. I also met many of the vendors and learned of the services they provide.
Retirement Industry Trust Association Annual Conference
The Retirement Industry Trust Association (RITA) held its annual conference in Washington, DC on March 23-24, 2015.
I took the opportunity to sponsor this event and speak with the CEO's of all the major self directed IRA Custodians, Administrators, and Facilitators of Self Directed IRA's and 401K's. This was a terrific event to hear from key government officials (Dept. of Treasury, Dept. of Labor, IRS) on their view of this industry and its issues going forward from their perspective. Key players from Pensco Trust, Equity Trust, IRA Services, Horizon Trust, Sunwest Trust, IRA Financial Group, MidAtlantic IRA, uDirect, SDIRA Services, among many others attended this great educational 2 day event and were a great resource to hear from on what is happening on the front lines of this industry. RITA is the watchdog for the Self Directed IRA industry and works hard to keep it free from excess government regulations and keeps important issues in front of government officials who are in positions to influence the industry going forward.
I am very confident after meeting the Board of Directors of RITA and the many dedicated individuals who run these companies that the Self Directed Retirement industry is in good hands and positioned well for the future. Owners of individual retirement accounts (IRA's) can be confident that their interests are being protected and the future of the Self Directed IRA secure.
Retirement Savings: Are You Setting Yourself Up For Failure?
Is there a retirement crisis looming? Many experts think so, given that "about 45% -- or 38 million working-age households -- have not started a retirement fund of any kind," according to a May 6 article in the Huffington Post. This disaster-in-the-making can be easily remedied, with some definitive and smart saving. Other than not saving at all, what is the next biggest mistake?
Many Americans fail to diversify their future retirement income. A lack of diversification can be a critical and even devastating misstep. It is important to have a retirement account (typically a 401K), stocks and bonds, and some non-traditional types of collateral, such as a self-directed IRA. Here are some pointers on how to secure loans and future investments from a non-recourse lender:
Americans Turn To Self-Directed IRAs For Smart Real Estate Investments
Have you turned to a self-directed IRA for a smart real estate investment? Nearly all Americans have heard about the looming retirement crisis. Figures such as "53% of the civilian workforce participates in or contributes to a retirement plan," according to U.S. News and only 48% contribute to retirement accounts in the private sector, are sobering. When it comes down to it, the biggest problem may not be Americans' inability or unwillingness to contribute to retirement funds and options; the real problem is the lack of knowledge about the topic. The vast majority of Americans do not know about valuable alternatives to 401K and traditional IRA plans. Very few know about self-directed IRA plans, non-recourse lenders, and IRA loans, for example.
How a Pianist Bought a Building With Her Inherited IRA
A few years ago, a famous violinist died and left his daughter a total of five million dollars in assets. According to Forbes, part what was left to pianist Laura Harth Rodriguez by her deceased father was two million dollars in retirement accounts. What Rodriquez wanted to do was purchase a three-story-building in an up-and-coming neighborhood in Pittsburgh. The caveat with doing that is that she would have to take the money out of an IRA, which she would have to pay all of the taxes on at the time of withdrawal. Right?
Three Important Questions About Non-Recourse Loans
The world of finances can definitely be a tricky one to understand, with so much confusing terminology and tiny differences between borrowing options and repayment plans. So, in hopes of clearing up some of the confusion, here's a small guide to something called a non recourse loan.
Working Americans almost all look forward to retirement, but the fact is, retirement these days isn't as sure a thing as it used to be. In fact, almost half of retired Americans are considered to be economically vulnerable, and about one in four Americans think that they will have to work at least until the age of 80 to retire. One of the ways that many people do start preparing for retirement is to open an individual retirement account (IRA), but there are rules about what an IRA owner can and cannot invest in with it.
The Solo 401K is a self directed retirement trust that allows the Trustee of the Solo 401K Trust to direct his or her retirement funds into investments that they know how to make money at. Whether that may be a real estate investment or business, the Solo 401K has several advantages over the typical self directed IRA.
One of the things that almost every working American depends on is being able to retire comfortably. We have visions of traveling, sipping fruity drinks poolside, playing with grandchildren, or finally starting the novel we always wanted to write. The reality is, though, that many Americans are forced to work into retirement, and almost 30% of people working in America believe that they will have to in order to be able to maintain a comfortable lifestyle after retirement.
One way that people are preparing for their retirements is to invest in real estate, but doing it in a way that doesn't cut into their income. How? By using the funds in their individual retirement accounts (IRAs).
Equity Trust Company and Pensco Trust Company are 2 of the largest and most well established custodians allowing their clients to invest in alternative assets and real estate with their with their retirement funds. They have been in business for decades and meet all of the federal regulations for custodians. There are many other very good companies but these are just a couple of larger ones you may want to interview when looking for a home for your self directed retirement plan.
Non Recourse Lenders
Non Recourse Lenders in the self directed retirement plan world are few and far between. If you have done any research in looking for leverage for your self directed retirement plan you will find that there really are only 2 nationwide non recourse lenders. They are First Western Federal Savings Bank (myiralender.com) and North American Savings Bank. These two companies are federally chartered savings banks with FDIC Insurance. We at First Western Federal Savings Bank pride ourselves in offering nationwide financing for investors buying any kind of income producing real estate, whether it be residential properties, apartment buildings, commercial buildings or ag land. North American Savings provides financing for 1-4 family residential properties only.
Three Common IRA Non Recourse Loan Questions Answered
The typical final part of the American dream is being able to enjoy a comfortable retirement, but these days that future is not as certain as it used to be. In fact, almost 30% of Americans believe that they will not have enough money to live comfortably after retirement, and 40% think that they will have to work past the age they planned to retire to maintain their lifestyles. One option for ensuring that you will be able to retire when you want and comfortably is to invest with your self directed IRA.
401K or Solo 401K Non Recourse Loans are a great way to leverage your 401K funds to get a better return on your money. Financing the purchase or refinancing a purchase of real estate inside of a Solo 401K has some distinct advantages over using a Self Directed IRA to buy and fund real estate purchases. The process is the same no matter the retirement entity purchasing the property and funding it with a Non Recourse Loan. However the big advantage to the Solo 401K is that there is No potential UBIT, or Unrelated Business Income Tax on any of the profits made inside of the Solo 401K either from rental income or the gains from the sale of the property. When the rules were written for the different kinds of retirement plans, the Solo 401K got a great break in that it is exempt from Unrelated Business Income Taxes.
IRA loans are a great way to leverage your own retirement funds and make them stretch farther in acquiring investment real estate inside of your self directed retirement plan. Whether your plan is a Self Directed IRA, Solo 401K, IRA LLC, or other qualified retirement plan, you can use as little as 40% of the purchase price in your own retirement funds and combine that with a non recourse IRA loan from First Western Federal Savings Bank. The rental income from the property pays back the loan and covers all operating costs of the property.
Recourse vs Non Recourse Loans. What is the difference? You may hear about Non Recourse Loans and wonder what that is all about and how can you get one.
Let's start with Recourse Loans first which is the typical loan you may sign at a bank or credit union when you borrow money for a car or a home or commercial building. You usually sign the promissory note in your own name or your companies name and you are responsible for making the payments on that loan. And if there is a default on the loan, you as the borrower can be sued for the unpaid balance of the loan.
Non Recourse Loan underwriting criteria with First Western Federal Savings Bank is very straightforward. We look at 4 areas when determining whether or not to make a Non Recourse Loan. The main areas are:
Does the IRA or SoloK or IRA LLC have enough money? What I mean by that is, does the Plan have the requisite 40% down payment necessary for most properties we finance, plus closing costs, and liquid assets still left in the Plan of 15% of the loan amount as reserves.
Does the cash flow from the property pay all operating expenses such as taxes, insurance, maintenance, management fees, and loan payments and have excess cash flow each month? We want to see a minimum of 1.25 Debt Service Coverage.
Is the property a good property in terms of condition (doesn't need a lot of work to be rent-ready), neighborhood, priced in line with other homes in the immediate area, conforms to other surrounding properties, etc.?
Management of the property will be solid, whether you as the owner of the IRA are experienced in rental property management yourself and can handle the issues involved or will have professional property management if the property is located in another state or you just are most comfortable with professional management.
If a non recourse loan request will have these 4 components covered, then you are well on your way to acquiring that rental property in your SD IRA or Solo K or IRA LLC.