Exploring the Latest Trends and Opportunities in Self-Directed IRA’s (2023)

David Moore: Hi, Dave and Tom Moore. And we are shifting gears into the IRA’s side of the business, Tom. And it’s interesting because when we put that business together, we did it just to accommodate our 1031 clients wanting to… They wanted to diversify outside Wall Street. And that business, we put together shortly before the last crash, right? And so, during recessionary times, we see that side of the business blossom a little bit because people are looking for diversification and just things… Hard assets, tangible assets are the best inflation hedge there is. So, what are we seeing with respect to that side? And what kind of comments or tips do you have for people?

Tom Moore: Yeah, see, you are definitely right. We see a lot more action on the IRA side of the business, the self-directed IRAs, when you get in these uncertain times, and people are tired of seeing the stock market going through its ebbs and flows. I don’t know if they’re ebbs and flows as much as cliffs and…

Tom Moore: But yeah, it’s… We get a lot of people who are looking to get into some form of real estate related assets, or maybe they want to go into precious metals. Quite a bit of lending, actually, going on with people too. And I think that with the increased mortgage rates, it becomes more attractive for people with their IRA’s to get into that.

David Moore: So, you just talked about precious metals a little bit, and I have just got to ask you real quick, is there any such thing as a gold IRA, let’s say?

Tom Moore: Well, the people will market gold IRA’s and so forth. But really it’s… You have any self-directed IRA can buy into precious metals. I think that the people who are marketing gold IRA’s are… It’s specific to their company and that’s pretty much all you’re going to be able to buy through them, as far as I know. With a self-directed IRA, the ones that we set up for people, people will end up with, in most cases, an IRA LLC or checkbook IRA, and they are open to do all sorts of investing, all of the ones I just mentioned. Again, most of the people we… That we deal with are, again, trying to get into real estate related assets. Whether they’re buying a rental property, or they are acting as a lender on a neighbor’s purchase, or loaning to a contractor, I think that’s…

David Moore: Yeah. So, we have got a couple different contractors that are building… Developers that have actually put investment funds together and they use…

Tom Moore: Yeah. It’s worked out great for a lot of these guys, and some pretty big name developers have done this where they have a pool of IRA investors. They have set up their Self-Directed IRA’s so that when builder needs money, just goes to these individuals, and not having to go through the typical channels for construction financing.

David Moore: All the red tape that would be involved going through a traditional lender.

Tom Moore: Yep. And the investor knows the product, comfortable with it. And yeah, it has worked out well for them.

David Moore: So, if somebody was going to go out and they wanted to take their retirement money… And most of the people, like when you and I put this company together, we did it as a combination to our 1031 clients pretty much, right? They just were looking for more avenues to use, more money to go feed their real estate. And as you said, I think most of our clients are either buying property or lending on property, but they have done a variety of other things, including business startups. But to do that, how… Right now, if somebody comes to us, how long do you feel… What’s your experience, as far as timeline, to get one of these accounts established? And is there anything that they should or should not be doing during that process? For example, if they find a property before the thing’s set up, can they write the offer or?

Tom Moore: Yeah. Well, it’s always good to do some planning, as we know. You can usually count on it taking about a month to get the things set up from start to finish. We have got to get all of our applications in, get documentation put together to set up the self-directed accounts, register LLCs, get operating agreements together, the transfers of funds from the client’s existing account to the new custodial account, and subsequent investment from that account into the LLC. It’s going to take about a month. As far as them going out and making offers on investments, they can do so, but they cannot make the offer in their individual name or in any party name that is a disqualified party. And that’s going to be themselves as the IRA owner, spouses, family members that are lineal descent, parents, grandparents, children, grandchildren, cannot make the offers and then assign it over to the LLC.

David Moore: So, for me, let’s say you wanted to make an investment, the account wasn’t set up. Could I, as your brother, write the offer?

Tom Moore: Good question. You could, because you, as a sibling of mine, are not a disqualified party.

David Moore: Isn’t that funny?

Tom Moore: So yeah. You can have siblings, aunts, uncles, nieces, nephews, none of those parties, none of those people are disqualified parties. So as long as it’s done under those names, or you could… If you wanted to, you could draft up the agreement under the IRA of your name but you cannot do it in your name and then assign it over to your IRA, that is a prohibited transaction.

David Moore: So, what’s the old saying on planning? [laughter] “Those who fail to plan, plan to fail.” So, the idea is, you can do all this stuff, but really, once again, ask the questions early, get the thing ready before you go and jump on this stuff. Because I feel like 1031 is over 100 years old at this point, we still have too many people that call us after something has been purchased or sold, right? I mean, it’s already closed.

Tom Moore: Yeah, I had at least probably three people last week who called up and they had already closed on a sale. One of them said they hadn’t received the money yet, but it was still too late to do it.

David Moore: And we have had some problems lately where people… Somebody says, “Well, the sale failed to happen.” And they want to just go ahead and make the purchase. And somebody will say, “Well, I’ll just do a reverse exchange.” If they have closed on that replacement property, are we stuck?

Tom Moore: If they have already closed on any property and it’s not set up as an exchange, it’s too late.

David Moore: And with the IRA’s stuff, it’s really… So, 1031 is over 100 years old at this point. The IRA biz… IRA biz… I shouldn’t say IRA’s, IRA’s and 401k’s came into play in the mid ’70s. So not very old, comparatively. But it just is one of those things that the information available is just so minimal, and I think it’s just people here, they can do something, and then they just get excited and go do it. And then they call us after the fact, and then it’s really hard to clean stuff up because of prohibited transaction rules.

Tom Moore: Yeah, and back to the planning, real quickly. We can certainly set these things up where you don’t have to pull all of your money from its current investment to get these things going so you have the ability to make an offer. A lot of times, we have people that will say, “Let us just get enough money into this account. We will sell off some of our stocks over here and we will move enough money over to this new account so that we have enough money to make an earnest money deposit, should the right property come around.” So that happens quite regularly. We will have people that will transfer over $20,000 or $30,000. And they have got that sitting in their account so that if property pops up and they want to make an offer, they can go ahead and write that offer that day and put down an earnest money deposit. And if everything is agreed to, then they just move the rest of the money over.

David Moore: So, if somebody wants to put one of these accounts together, is it all or nothing? Or…

Tom Moore: No, absolutely not. A lot of people we deal with have got multiple IRAs or 401k rollovers from previous jobs. And they might take some of that money and put it into one of these accounts. And the question also comes up, “Well, can I have my IRA LLC as self-directed, and also invest it in stocks and bonds? And yeah, they can. So, a quick scenario, and that might be somebody goes out and buys an investment property, they have got rental income on that property. And that rental income is not enough to go out and buy another investment, like real estate. But it’s earning nothing in the bank. They might open up a brokerage account in the LLC name, and that way, they can have that money sitting in the stock market as well.

David Moore: Great. Well, thank you for those explanations. Dave and Tom Moore, IRA advantage, iraadvantage.com. Thank you.

Tom Moore: Thank you.

David Moore: Be right back.