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RG 058 – How to use your self-directed IRA to invest in real estate with Kaaren Hall

RG 058 – How to use your self-directed IRA to invest in real estate with Kaaren Hall

About Kaaren

  • Kaaren was a radio announcer for 17 years.
  • Kaaren invests in real estate and precious metals.
  • She has also been a property manager for apartments.

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Kaaren graduated from college and went straight into radio announcing which was her steady career for 17 years, until she caught the real estate bug. From here she became a property manager for apartments and trained to be a realtor. She worked as a realtor for a year until she realized she preferred the investment side of real estate and moved into mortgage loan servicing and the origination. After 2008 when the mortgage business crashed she retrained in self-directed IRA’s and set up her own business which has helped 3500 people to date. Kaaren is still involved in property investment and owns an apartment complex and regularly invests in precious metals.

What is an IRA?

An IRA is the name used for a financial retirement plan in the US, but in Australia it is called a superfund and in the UK it’s a personal pension plan. IRA stands for Individual Retirement Arrangement and they were started in the US in 1974. These are different to a 401K which is paid into by an employer; an IRA is a personal and individual plan with less strict rules than a 401K. The benefit of these plans is so that the average American doesn’t have to rely on social security after retirement.  Kaaren advises that everyone should talk to their tax advisor when deciding whether to use their employer set-up 401K or a personal IRA account. All IRA’s are tax free to save money however there are several different types of IRA’s and the most well known subtype is the Roth IRA. The Roth IRA is different because you contribute to it after tax but once you’ve taken the money out of the account to invest it remains tax free for life. Unfortunately there are limits to setting up a Roth IRA and you can’t open an account if you earn over $118K as a single person or $186 if you file jointly. However, there is a loop hole which allows you to contribute to a different IRA and then convert the money into the Roth regardless of your income.

Setting up an IRA for RE investment

There are three steps to setting up an IRA; 1. Filling out the forms and getting an account number, 2. Fund the account – there is a limit to the amount you can put into the account so please consult your tax advisor, 3. Fees – all account management will have different ways to charge fees, but Kaaren charges a straight $275 per year. Once you’ve got a fully funded account you can find an asset and invest, however it’s technically not you doing the investing; it’s the IRA. It will be the name of the IRA on the forms and so Kaaren as the IRA custodian would sign on its behalf. This means that any money made by the asset cannot be used by you and must return to the IRA. Kaaren also advises that you plan ahead with funding the IRA because with most account you can only put in maximum $5500 per year, so for investing you will need to roll over your other savings from a 401K or partner with a fellow investo
rs IRA. Once you have the money and an asset in mind you need to do the planning and see if there is enough money for all the costs of rehab, expenses and purchase. As this is a self-directed IRA the ownness is on you to do the due diligence.

Prohibited transactions

There are three kinds of prohibited transactions on your IRA that will open you up to be liable to tax and have your IRA dissolved. The first is that the money is for no personal benefit and can only be used after your retirement. Lending money can only be done to distant family members (e.g. aunts/sister-in-law/nephew) and not to direct members like a mother or son. When you lend money to a distant family member the money still cannot be used for your benefit, for example it can’t be used to invest in your business. The second prohibited transaction is that you can’t buy or sell assets between the IRA account and a disallowed person. This means that you can’t sell property to your son or buy from your mother. The third transaction is that you can’t do business with anyone selling services to the plan, for example your father can’t be a broker on the property purchase you are making with the IRA money, even if he’s working for free. The ownness of knowing this is on the account holder as this is a self-directed fund.

 

Top tips

  • Most successful habit – Prayer and meditation and working out.
  • Most influential person – Napoleon Hill, Stephen Cubby and Tony Robins – take massive action when you have an idea.
  • Tool – The internet, tech and security
  • Biggest failure – Set back when let go from last self directed IRA company – so started own company
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