How to Double Your Retirement Overnight

The following is a hypothetical model based off of an investors figures he figured on this actual property.

Back in 2007, the average IRA that was transferred to a self-directed IRA was about $200,000. After the crash in 2007-2008. The average value of IRAs decreases to about half, thus putting the current value at $100,000.

We will be walking through this example of a $200,000 IRA in a real-life scenario to show you how you can double your retirement overnight.

The investor purchased a rental property at the height of the market in the name of his IRA. The investor is utilizing a self-directed IRA where he can purchase alternative assets, NOT taking a distribution from your retirement account.

The property was purchased for $180,000 in a self-directed IRA coupled with a non-recourse loan. The investor was able to leverage the funds in his IRA to purchase an investment property.

What the investor had to put down on this property to qualify for a non-recourse loan was $63,000. The remainder was a loan from the bank in the investor’s IRA. The IRA will have a mortgage and a deed of trust that goes inside of the IRA. The investor does not own the property, the IRA does.

The market value on the day that IRA closed on the property increased the value to $217,000. Let’s break down how this happened; $180,000 on the property and $37,000 cash. The day before the value was $100,000.

If you recall the original value before the crash was $200,000, then the market crashed which brought the value of the IRA to $100,000. The current value was able to double overnight by using other people’s money through a non-recourse loan.

When the investor calculated this investment he chooses to calculate the value of the investment now and projected value in the future to determine when and if he would like to sell the property.

The investor projected about a 3% capital appreciation on this property per year. This percentage is based on the market value of the property at the time of purchase ($180,000). The property should make about $5,400 per year and the investor plans on holding this property for 10 years. After 10 years, the capital gain is estimated to be $54,000.

At this point, we are 10 years after the purchase. The investor’s calculations are almost spot on, the calculations fell a little below 3% but has caught up recently. The original idea was to sell this property after 10 years.

The value of the property and cash in the self-directed IRA is now $271,000. Remember, the investor started with only $100,000 in this IRA. You may be saying, “yes, but there is a loan on the property.” You are correct. However, the investor paid more than the minimum of $700 per month on the loan. This property is currently producing $1,350 per month in income. The net income has been about $900 after setting aside money for property taxes, management fees, and repairs that must be paid by the IRA. After 10 years of paying more than the minimum, the balance is now at $40,000. If the property would have been sold at 10 years for the IRA would receive $231,000 – the investors IRA only put $63,000. That is about 30% per year average annual return on this investment in a tax-sheltered self-directed IRA.

Here is a table to show how the IRA doubled overnight:
2007 IRA account value $200,000

 

After crash IRA account value $100,000

 

Investment Property Purchased:
Funds from IRA $63,000

 

Funds from non-recourse mortgage $117,000

 

New value of IRA + Cash Funds $180,000 + $37,000

 

Long-term Investment Calculation*:
Capital Appreciation at 3% times 10 years $54,000

 

10-year appreciation $271,000

 

Loan Payment at $900 per month (-$40,000)

 

IRA Tax Advantages Appreciation $231,000

 

*Estimated by investor, not advice

If you would like to learn more please visit our webinar, Alternative Asset Allocation Model 

Benefits of a Checkbook IRA

Cheque | Blog | Mountain West IRA

To maximize your IRA investment options, it is essential to have a retirement plan that allows you to select your own alternative IRA investments. Self-directed IRA’s allow you the freedom to invest in what you know. At Mountain West IRA we can help you with that. Your IRA can invest in real estate, private stock, notes or mortgages and even Partnerships & Joint Ventures. The list can be as diverse as your imagination and only limited by the IRS rules in place for IRA investing.

Self-Directed IRA LLC 101:

1. An LLC is a legal organization that provides the advantages of a partnership while limiting legal liability of the individual partners much the same way a corporation does.

2. An Investor can use a self-directed IRA to invest in LLCs.

3. It is not necessary to create an LLC to invest in your IRA.

4. An IRA invested in an LLC tends to be complex and requires careful management to avoid tax penalties and/or prohibited transactions.

5. When setting up an LLC for your IRA, you should always consult with a lawyer who is familiar with ERISA law.

So, what are the benefits of investing in an Self-Directed IRA LLC?

1. Speed

Normally, when making a transaction through your retirement account you would need to contact us here at Mountain West IRA as your third-party administrator. This requires some paper work, possibly some check processing or wiring of funds, and depending on the type of investment, there will be forms, You can skip all of this when you establish and LLC, and set up checkbook control with your IRA. An IRA LLC gives you easy access to your funds so you can react quickly in a volatile market, and easily take advantage of a time sensitive investment. Many investment transactions will be much quicker and can be as simple and expedient as writing a check.

2. Cost Benefits

Who doesn’t want a way to pay lower fees? Checkbook control can help you avoid the transaction fees and check-writing fees normally associated with any self-directed IRA. Also, if you own multiple investments in your LLC, rather than paying bookkeeping fees on each asset, Mountain West IRA only charges you for that single asset, the LLC.
So, an LLC with checkbook control may actually help you save money, which leaves more funds available for investing.

3. Control and Freedom

Once you identify an investment you want to purchase, you can just write a check. You don’t have to fill out paperwork or get approval from Mountain West IRA. If you have performed your due diligence and are ready to invest, you can take care of it yourself.
If you have an LLC, your Self-Directed IRA is truly in your hands. You are the one who is in total control of how your IRA operates, you have the freedom to choose how and when to invest.

Your child can save, too!

lawnmower-3Did you know that you can set up an IRA for minors? Setting up an IRA for your child or grandchild can be a very effective way to teach children about the principles of savings, financial management, and retirement. That first car or new laptop might look attractive to a kid, but even small contributions to an IRA will pay off in the long run. The only requirement to make a contribution to an IRA is earned income, even if it’s earned from mowing lawns or babysitting. For 2013, your child can contribute the lesser of

  1. Her earned income for the year or
  2. $5,500

You can set up either a traditional IRA or a tax-free Roth IRA —both accounts have the same contribution limits. And because these earnings compound tax-free, the accumulation of wealth over the course of your child’s lifetime is substantial. Schedule a meeting  with one of our Self Directed IRA experts for more details on setting up a self-directed IRA for your child.