Investment Types

You should never feel as if your retirement funds might be able to do more outside of your IRA vs inside. Funny concept, when all we have been taught over the years is to invest in the stock market and earn an average return to grow your retirement. Thankfully, Mountain West IRA allows you to invest in what you know best!

Let’s talk about the different options of investments.

Common Investments vs. Alternative Investments

  • Common Investments: Public stocks, bonds, mutual funds. You can open an IRA with almost any financial custodian that you see on TV or at your local bank, and you can have the option to invest in a public stock trading platform.
  • Alternative Assets: Real estate, promissory notes, private companies, or precious metals. YES, you can use your IRA to invest in all of the above. You will not find this type of account at your local bank or big-name financial organization. You will want a company that specializes in self-directed IRA’s with alternative assets. You choose the investment and have the opportunity to invest in what you know. You do Not have to go with a company that offers the same cookie cutter investments as every other company. You can have the freedom of self-direction, where you can build your retirement employing the same tax-deferred or tax-free methods of retirement accounts.

Our favorite thing to hear after a client does their first transaction is, “Why have I not heard about this sooner!” The education is out there. However, you must wade through a swamp of commission-seeking financial advisors to get it. Keep in mind, someone who is only trained in common investments may not be educated in alternative assets.

Diversification is very important when it comes to retirement. This is your future – putting time aside to learn the methods that fits you and your family best are important.

Invest in what you know best! Click the link below that interests you.

Promissory Notes

Real Estate

The Differences Between a Traditional IRA and a Roth IRA

If you’re looking for self-directed IRA companies, look no further than Mountain West IRA. We take great pride in helping our clients create the IRA retirement plan that will provide you with the solid financial foundation you need to ensure you can live comfortably in your retirement years. As a widely trusted self-directed IRA third party administrator, you can rest assured your investments are in good hands. We accept a vast array of alternative investment options so you can create a diverse alternative asset portfolio that yields the results you are looking for to fund your retirement years.

Choosing the correct account for yourself and your family may seem complicated and confusing, but you only have a few options when it comes to how you wish to be taxed. Below we share a comparison between a Traditional IRA vs a Roth IRA.

Traditional vs. Roth

  • Traditional: You may potentially receive a write-off on your taxes for contributions, determined by your household income. The funds then grow tax-deferred by revenue and dividends generated from your investments. Upon retirement age (59.5) you can begin distributing funds from your Traditional IRA without penalty, but this income will be added to your gross household income, so you will have to pay taxes on these funds. You can, if you wish, wait to distribute any funds from your account until 70.5 years old. At that point, the IRS rules say you must begin taking Required Minimum Distributions or RMD’s. This is basically the government’s way of saying, you received a write-off when you put these funds into this account we need to make sure to get our taxes before you pass away. I know, somewhat morbid!
  • Roth: You do NOT receive a write-off on your taxes for contributions. The contributions you make to this account are “after-tax dollars.” However, you will get to grow your retirement money tax-free, forever! Like the Traditional IRA, the funds then grow by revenue and dividends generated from your investments. After age (59.5 and 5 years of the account being opened) you can take a distribution that is both penalty and tax-free. This tax-free distribution increases your NET household income. This is also an excellent choice for an estate planning tool, as you do not have to take any RMD’s, at any age. You have already paid your taxes. You are free to do what you wish with your distributions.

* High-income households: your financial advisor may tell you that you do not qualify for a Roth. There is something called a backdoor conversion that you can contribute to a Traditional and not receive a write-off, then convert the next day to a Roth. There is never a no iif this is the account type you want!

These are the primary differences between Traditional and Roth retirement accounts. There are some other rules that may or may not apply to you depending on your household income. Please speak to a Mountain West IRA representative if you wish to learn more.

Are you interested in learning more? Here is a no cost, no obligation webinar for you to check out: Alternative Asset Allocation Model

What Type of Retirement Plan Do You Have?

Do not overlook your retirement and assume your financial planner has your best interests at heart. You need to be educated and take control of your retirement. Over the next month, we will be going in depth about the differences inherent among common retirement terms.

What types of retirement accounts are there?

Employer Plans

  • If your retirement plan is offered through your company, they may call it a 401(k), 403b, 457, Thrift Savings Plan; there are many other names depending on the type of company you are working for. The employer determines if there is the option to contribute to a Traditional account or Roth (I will cover these differences next week). Employer plans often have a pre-determined set of investments that the employees can invest in. Some employers allow for employees to choose high-risk or low-risk and the company’s financial planner will do what best suits that person’s risk assessment. Most companies do not allow for employees to rollover/direct rollover their retirement plan to invest in alternative options. This leaves the employee trapped with the decisions the employer has available.
  • I’m retired, or I have left the company now what?
    Once you are no longer employed by the company, they will prompt you to rollover your IRA to another Custodian, distribute, or some plans may allow you to set up a distribution plan upon retirement. If you are interested in using your retirement account for investing, you will choose a rollover or direct rollover option. At this point, you can establish an IRA with Mountain West IRA and begin looking for an investment! The IRS will see a rollover or direct rollover and, if done in a timely manner, this will not be a taxable event. Most employer retirement plans will not withhold taxes if the funds are going directly into another qualified retirement plan. You should speak to your plan administrator for specific details.
  • You can review the complete IRA Starter Kit process here

Individual Retirement Accounts (IRAs)

  • Individuals who do not have the opportunity to participate in an employer plan should definitely look into IRAs. Even if you can contribute to your employer plan, an IRA may be a better fit for you. You can contribute to a Traditional IRA or in a Roth IRA because you are making the decision. You can also decide if common stocks/mutual funds are the route for you or if alternative assets are a better fit. IRAs are qualified retirement accounts that have contribution limits. However, if you need additional funds for an investment, you can transfer IRAs you currently hold, or rollover funds from your employer plan, to add to the amount you have available to invest.
  • You can look into each type of plan here, or you can watch our webinar on Which IRA is Right for You here.

Are you unsure what type of account you currently have? This information is typically found near your name on the first page of your statement. If you need help, you can submit your statement to accounts@mwira.com, and we can assist you!

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 

5 Must-Have Characteristics for Successful Real Estate Investing

real-estate-investmentOver time, real estate investments have afforded many people the powerful combination of appreciation and income.  The purchase of real estate through a self-directed IRA is a popular choice for this and other reasons. While there is no definitive list of characteristics that make someone successful at real estate investing, most successful real estate investors share a certain set of characteristics.

  1. Competence – it is crucial to understand the ins and outs of investing in real estate. Joining local associations, such as a real estate investment association, can be a great way to develop an understanding about real estate investing. Mountain West IRA provides our clients with continuing education and seminars to put their self-directed IRA to work for them by investing in real estate. Learning as much as you can about real estate will help you become a more competent investor.
  2. Make decisions grounded in logic – with every investment decision you make, your strategy must be based on facts and logic. You cannot let emotions sway your financial decisions. Work on developing solid financial goals based on your knowledge and understanding of the market and avoid being influenced by emotion in your real estate transactions.
  3. Understand the real estate market – while it is necessary to understand the principles and strategies of real estate investing, you must also understand your particular market. Certain concepts you’ve learned about may not apply to the real estate market you’re investing in, so completing your own research becomes essential.  Asking questions of successful real estate investors or joining a real estate investors association can provide valuable information. If you are using money from a self-directed IRA for your real estate investments, it is absolutely crucial to understand the applicable rules and regulations. Contact Mountain West IRA for help in setting up your self-directed IRA and to understand the prohibited transactions.
  4. Be consistent – when you first begin investing in real estate, you must develop an investment strategy. Begin developing good habits early. There will be regular steps to take on a daily, weekly or monthly basis – do them consistently. Consistency is one of the biggest hurdles to overcome, but if you do establish consistency, success will likely follow.
  5. Establish good character – Stick to your principles and treat business deals the way you would a relationship – treat the other person like you want to be treated. Shortcuts and hasty deals can backfire and a damaged character is more difficult to repair than the “fixer upper” investment property. In the world of real estate investing, opportunities abound.

With patience, logically grounded decisions, and professionals like Mountain West IRA to help you establish and manage your self-directed IRA, you will have a much more enjoyable real estate investment experience.

Paradigm Commercial Capital Group

Paradigm Commercial Capital Group is a nationally recognized leader in equipment lease and finance. Paradigm CCG provides commercial lending of all types, including commercial real estate loans, private equity transactions, and with a primary focus on equipment leasing. Composed of a group of certified, highly experienced financial professionals, Paradigm CCG is at the forefront of the commercial finance industry. Paradigm works in correlation with wealth management groups and financial planners to provide both investors and small businesses a distinctive opportunity for concurrent growth. Paradigm primarily seeks to lend to C and D credits, companies that are considered unbankable. To counter the credit risk for these borrowers, Paradigm requires a 10% cash security deposit, along with a 2:1 collateral security based on third-party inspections and evaluations.

After a comprehensive approval process, Paradigm uses private investors’ money to fund these transactions, generally paying investors 18% over a 24-month period. The relationship with the investor or fund is vital to the overall success of Paradigm’s business model. The model is based on transparency, not only between Paradigm and clients, but also between Paradigm and the investor. Each investor knows exactly which transaction they are funding and no monies are ever pooled from multiple sources in any given transactions. Paradigm allows the investor the opportunity to review deals prior to the dispersal of the investment.

Once Paradigm receives notification from the investor that the deal is something he or she would like to fund, Paradigm collects and then disperses the money to the borrower. In closing documents to the borrower, a sale and assignment is issued to the funding party. This gives the investor protection with rights to the specific collateral assigned to the deal. Paradigm will issue monthly payments to the investor of the full return from the corresponding month’s interest and principal payments received. In the event that there is any default, Paradigm handles the liquidation of the collateral. Any monies received will first be deployed back to the investor to make them whole, including interest that would have accrued. If in the liquidation process there are leftover funds from the sale, the proceeds will be split between Paradigm and the investor.

Paradigm has developed a process that investors value. Using a self-directed IRA to invest in commercial financing with Paradigm can be a lucrative addition to an investor’s portfolio. With numerous strategic alliances and expertise in private investments, Paradigm Commercial Capital Group provides a broad range of investment options. Their knowledge and depth of expertise maximizes efficiency to an investor’s advantage.

Interested in Investing with the Paradigm Commercial Capital Group but don’t have cash available?Mountain West IRA can help you transfer your IRA or 401k funds into a self-directed IRA which you can then use to invest in private commercial financing with Paradigm Commercial Capital Group, real estate, precious metals, private notes, or many other investments. Contact Mountain West IRA to get started.

5 Lessons Learned from Rehabilitating Properties—by Robin Moffitt of Gold Star Realty

distressed homeIt’s a very profitable time to be involved in real estate, so think about modifying your business plan to include rehabilitation of properties for profit. I have been buying properties at 50 to 60% of their value and rehabbing them, which require a range of repairs from light cosmetic touch-ups to a complete remodel. I’ve managed to recreate my portfolio with significant growth in equity and cash flow. Throughout my experience rehabbing homes for resell, I’ve learned a few lessons I’d like to share with you:

  1. You can buy property at significant discounts without feeling guilty
  2. There is private money available to fund those with no credit
  3. You should not be greedy when you resell your property—I target 5 – 10% discounts on fair market value.
  4. Cash will start flowing—expect $150 – 500 per property on average. You’ll earn a guaranteed 12% with a couple of points up front on a property that has been completely rehabbed.

For realtors who were counting on their real estate portfolio for retirement and were hurt by the downturn in the housing market, this system will allow them to create cash flow and equity build up quickly.

Investing in Senior Living Real Estate

The growing senior population in the United States gives rise to some interesting investment opportunities. While most real estate investors are purchasinSeniorsg single or multi-family homes, others are looking at the aging population and seeing other real estate possibilities. The share of the population age 65 and older has been steadily increasing since 2000 and many of these seniors, although remaining active, no longer want to be tied down to a single family home.  Instead they are finding the activities and conveniences of new senior living facilities to be an attractive and affordable new lifestyle. Active adult communities typically contain a mixture of single-family homes, cluster homes and multi-family housing targeted to adults age 55 and older and providing additional recreational activities such as golf, tennis, dancing and other community gatherings. With new locations developing at a rapid rate, investors are finding abundant opportunities.

In addition to the active life style communities, as people age, their need for assistance in daily living activities such as eating, dressing, standing, sitting, walking and taking medications properly will inevitably increase. Thus the need for facilities including assisted living and skilled nursing is also on the rise and investment dollars are needed to fund these new facilities.

Unlike purchasing a single family home to be self-managed or managed by a property management company, investors can partner with other investors and larger, well-capitalized senior housing owners and managers to reduce the uncertainties concerning operations.

Ironically, investors can use their self-directed IRA funds to invest in the type of facilities they may someday retire in themselves. Contact Mountain West IRA for assistance.