Mark Perlberg: Okay, welcome everybody. We are live here to talk about retirement account strategies for real estate investors. Now, the topic of real estate investing and retirement account planning. A lot of real estate investors realize that there’s lots of tax advantages to investing in real estate with losses flowing through. But a lot of times we can overlook all these additional opportunities to build wealth and save money on our taxes with retirement accounts. And we’ll talk about this later. But these strategies are going to become more and more valuable over time for you because of certain things in the environment that we’ll talk about with upcoming changes in the tax code.
Now, the self-directed IRAs and 401ks are available for you obviously, to do more than just invest in securities. But you could actually invest in leveraged assets like real estate. So think about getting 8% on just your cash on security or stocks or whatever index funds. Think about what you can do if you’re getting 8% on leveraged assets. So you’re also making money on other people’s money. So you can do a lot with a self-directed 401k and IRA, for some of you guys who have left your jobs, if you have an IRA, most of you have 401ks from your former employers, and you can roll that 401K into into a self-directed account. And certain banks such as Rocket Dollar, we’re about to talk to Dan from Rocket Dollar, will allow you to use those funds to invest into real estate.
So you can do it, but we also want to consider the tax implications and potential traps if we don’t have a proactive tax plan in place. We also want to consider the restrictions on what activities we can and cannot do with our real estate that is managed by our retirement accounts.
So the agenda for today, and I’m really excited to have this because I get tons of inquiries on this topic. First, I’m going to have Dan walk us through what he does with Rocket Dollar. He’s a co-founder and they’re a great resource. Their customer support team is fantastic. Such a great resource in educating me and my clients and helping them understand what you can do and how to leverage this strategy. I’m going to sprinkle in some tax strategies as Dan is talking, and talk about some of the things that I’m doing with my clients with retirement accounts. And then I want you guys to put your questions into the chat. So if you guys are tuning in live on Facebook register for the event in Zoom because I’m looking at the questions in Zoom. I’ll try to see stuff on Facebook, but we got a lot of screens going on right now. Put in your questions after Dan has done his presentations. We’re going to answer all your questions and give you an idea of what kind of opportunities are available for you.
So before I get into introducing Dan, I just want to let you know some updates on the practice. Some of you prospective clients are getting a little antsy because we’re so busy and the demand exceeds our manpower to onboard everybody at once. So you’re waiting and waiting for us to be available. We’re going to start onboarding new clients in July. So hang in there. We are onboarding top talent to build the most efficient and effective team to provide the best tax strategies for real estate investors and business owners. So hang in there.
And also, as I said, I’m billing a team and we’re at the point where I’ll be hiring will be hiring throughout the year. So anyone who finds a qualified resource will get a $1,000 referral fee from me if I hire them. So if you know someone who wants to be part of an exciting team, let me know. A lot of great opportunities. But without further ado, I’m going to introduce Dan. Dan, can you tell us a little bit about yourself and your background and what you’re working on? And then let’s go into some of the slides you prepared to talk about what you can do with your retirement accounts as a real estate investor.
Dan Kryzanowski: Awesome Mark. It’s so great to be here, and super excited. I feel this is the summer energy that we have going here, and there are so many great things to do with your self-directed IRA. I like to share because I know Mark from North Carolina, how I got into this, fun backstory, I was co-best men in a wedding about a dozen years ago. Gentleman was from North Carolina. I was wearing my powder blue. So sorry for the dookies out there, even though Coach K and I are, I guess brothers from another mother as they say.
And I asked him what he does and he says, “I flip houses.” I said, “Oh that’s great. What does that mean?” He said, “15%.” My ears sprung up. And then he said the magic words, “Did you know can use your retirement dollars?” And for me, this was a mind-blowing experience because I was used to logging into my Fidelity or elsewhere and only having 10 or 12 choices. And when it came to real estate, hardly a choice. So for me, this was truly in many ways, shapes or forms life-changing and something that I feel frankly is going to allow me to retire, pun intended with my retirement accounts, a few years early. So with that said, I’d love to just bring a few slides up and please, please, please, and if you have some drinks with you, I get it, it’s Thursday night. I think that’s the most fun way. But let’s keep this interactive here as questions come through.
Love to make this a very interactive dialogue. So Dan Kryzanowski, founding VP at Rocket Dollar. I’m assuming a lot of folks here are real estate investors in some way, shape or form. Even if you own your own house or take care of one of your parents, you’re a real estate investor. And likewise, my guess is everybody here has some sort of retirement. I’m early 40s, even if some folks are in the 20s on the call, you probably at the very least have a 401K with your current job. So this should be pretty impactful I think for majority of us here.
So the fun stuff for my multi-family friends, I like to say I like to channel my inner Rod Khleif here. And Rod’s amazing if you ever hear him speak. He talks about life a bit more than multi-family. But the three easy things I like to share is, hey, the morning meditation, I literally do a 180, put my feet up the wall and get the blood flowing back into my head. It’s a great way to start the day, even if I’m not brave enough to go for a jog in the morning. The other two I actually learned during COVID. One was you call it a cheesy Netflix, but the gratefulness circle, it’s real cute with my five-year-old son. We go around in a circle, say what we’re grateful for. And trust me, I think there’s a big delta on the days that we do it and the days that we don’t.
And then of course, I have to throw in a Kardashian reference here. What I read about Kim is she writes a letter to her son every year, which I think is actually a really great thing to do, particularly after the year we had last year. So it’s a fun little exercise. So with all that, if you gain anything out of this session or if you have to log off in 30 seconds, this slide alone and the next slide I think is going to be your money’s worth.
So listen, tonight is all about you. Our most precious thing after our health is our time. So I want you to know that you can use your retirement dollars to invest in real estate. It seems simple, but I’m going to take a pause here once again. It’s all about you for your retirement dollars from real estate. Now, twisting it a little bit, but just as important for all my friends that are raising money, did you know that your investors, all of our other friends that are on the call here tonight can use their retirement dollars to invest in your real estate? I’m not going to show the big macro sides, but I’ll say from IRAs alone, and we’ll talk about the difference between IRAs and solo 401k, but just the quote, unquote, little bucket of IRAs is 10 trillion. That’s trillion with the T. That’s more than all the stimulus.
I’m from Philadelphia, so it kind of goes toe to toe with our national debt. But this is a number in the trillions that only about a hundred billion, so about 1% is actually used. And as we go through the call tonight, you’ll see the main reason was that it was kind of an old stodgy process. Well now, it’s a very streamlined, simple, very kind of 21st century FinTech friendly process. So you can access your money at all times.
I won’t bore you with my introduction here, but we do live in a hashtag world and one thing that’s been really important to me was the solo 401k and also the different niches within real estate. I know most folks are aware, lived in an apartment, bought a house, there’s a whole lot more out there. And Mark mentioned just the ability to leverage in other people’s money and frankly other institutions’ money.
A lot of times, you as an investor can piggyback off that and get a huge benefit, particularly through the self-directed accounts. So with all that, my guess is if we were sitting around the campfire, we would come to the same conclusion where our head and our heart is at today. I like to say your parents old 60/40 stocks and bonds, set it and forget it, these days are long, long gone. Stocks are at a peak, bonds actually go down. Last time I logged into one of my legacy accounts, I was shocked to see a bond actually went down 6% in the quarter. That was actually a little scary. And the big thing when you get those flyers in the mail say, “Do you want to attend our annual meeting?” Sure, but you’re really not going to have that one-on-one interaction with frankly anybody at the company.
That just doesn’t play for myself, I think for you folks on the call. There’s a lot more respect for our time, our money that the old way of doing it is just not getting us there. So what are the benefits of a true diversified portfolio? I call this 21st century diversification. The big thing here is real estate. I’m not going to read up and down this, but as you know, it’s a hard asset. It pays distributions, it pays sale proceeds, aka a yield upside. We’ll talk on that. And of no surprise, I think a lot of us, I know there’s a lot of great New Yorkers on the call. I said I’m from Philly, I grew up in Scranton, lived all over the country. Fortunate to be in Miami for a lot of these family office shows in high net worth shows. And guess what? These folks will be real open.
They’ll say, “Listen, I generated my wealth through real estate and tax advantage accounts.” So it’s no secret, it’s legal, it’s been around for dozens, frankly hundreds of years, especially here in the US and it’s a great opportunity for us. So with that, I’m going to start with the sizzle and then I’ll pull it back a little bit. What can you invest with, with your self-directed IRA or solo 401k? So without knowing all of your backgrounds, some of this might seem a little elementary, some of it might be a little bit heavy. Please stop, ask questions. I see a chat coming in here. Mark, do you want to take that one?
Mark Perlberg: Yeah, absolutely. I was just saying hi to my buddy Dan. Hi, everybody.
Dan Kryzanowski: Awesome. We got two Dans on the call, it’s going to be a good evening. So I love it. I love it. Awesome. Well for Dan two out there, he probably knows better than me that it’s not just real estate. It’s startups, it’s loans, it’s crypto, it’s even international. I do want to point this out, I take it we have a crowd with a good global mindset here. As long as you have a US address that’s not a PO box, you can open a self-directed account and invest internationally. The only thing I would caveat to say is cannabis, the product itself has not received the big check mark from Washington, DC. That said, let’s say you own a strip mall and there happens to be a hemp factory, you should be in the clear with that sort of investment.
Mark Perlberg: Yeah, so check this out. So when we talk about combining our tax strategies with investment strategies here and thinking about how this fits into the picture here, one of my clients, she inherited a lot of real estate and she was going to get the real estate professional tax status. She also had some of her own real estate. So what we had the opportunity to do was with the real estate professional tax status offsetting all of her income, she was at a $0 tax bracket, no taxable income and potentially some cost segregation studies. If necessary, what we’re doing is we’re going to roll over all of her funds from her former boss’s 401K into a Roth IRA. That Roth IRA is going to grow tax-free and she’s really interested in crypto. So she’s going to actually invest into cryptocurrencies with a Roth IRA. That money’s going to be untaxed for the first 12,500 for a standard induction. I believe it’s 12,500 for 2021. It changes every year a little bit.
But around that amount is going to grow tax-free and is not going to be untaxed when we put it in. And the amount that is taxed, the first marginal rate that is going to be taxed at 10%. So not bad at all. And then think when we think about this compared to just investing in cryptocurrency with our ordinary accounts, the tax consequences are going to be far less, we’re not worried about any changes in the capital gains tax code because we’ve been proactive with the retirement account strategy.
Dan Kryzanowski: Mark, that’s dynamite. And I love the way that you shared that. And another way, like I share with my five-year old, it’s the seed versus the tree. And I think particularly with great planning, like Mark just shared. And if you have a little bit of a runway too, let’s just assume everybody’s 40 here, you can have quite a run in 30 plus years. We’re just talking a seed to a tree, you’re talking a whole forest here, that 12.5, with some pretty wise investments, that can easily be a 125, 250, even more. So I’ll give a final shout out to our folks in Florida here, and I’m here in Texas tonight, these tax-free states, I got to tell you, if you got to move somewhere for six months and one day, there’s a lot of nice places to live to do your Roth conversion. So the flexibility that some of the employers might give us for a while, there’s just a whole lot of good stuff. I think we’re in a great place.
Mark Perlberg: Never thought of that idea. That’s a great strategy. Wonderful.
Dan Kryzanowski: I’ve been here for a while so please, anybody can take it. I love it. All right, so I got to bring it down. Sorry kids. But okay, so on the flip side of all that wondrous stuff is the prohibited. I say this half jokingly. What’s really nice about self-directed accounts, and I’m going to give an analogy to lead into this, is that for those of you that have a health savings, an HSA, what’s nice is a government tells you what you cannot do. So for example, you fall, you break your arm, you have to go to the ER, you swipe your card. That’s fine, that’s an eligible expense. You know want to go out and who knows what, buy a new pair of Nikes because that’s going to help you run and be healthier. Sorry, that doesn’t count.
In a very, very similar aspect, there’s three things and primarily one that you cannot do with self-directed accounts. No life insurance, no collectibles. So pick on your collection of Air Jordans here. And the big thing is no self dealing. So what this means, think of yourself and your linear family, so your kids, your parents, your grandparents. Oddly enough, not brother and sister, but we’ll talk on that in a minute. What this means is that you cannot, your IRAs a disqualified person, you and yourself. So you cannot, for example, invest in your own company. I spent a summer in Ocean City, Maryland. I’m sure we’ve all had a wild college weekend there. Let’s say you cannot buy an apartment in OC, MD and have your kids stay on it at the weekend. Once again, up and down your linear family, you’re disqualified. Now I did mention brothers and sisters are not. That said, you have to be careful.
Let’s say you are going to have 10 investors in your company. You cannot give your brother or sister a sweetheart deal. They have to be treated just as equally as every other investor. And for some of us that like to get our hands dirty, be cautious. Now, once again, obviously if you had a rental house, let’s say, you can still, meaning your IRA as the owner of the rental house, you can still collect the rent payment, but you should have a third party that goes in and changes the light bulbs and does some of the managerial work. So the nice thing, especially with the checkbook control account, the likes that Rocket Dollar provides, all of that is going to be documented just as you would if you had your own personal account, a separate account for a property. So I’m just going to pause there. Mark, did you have anything else on the expense side?
Mark Perlberg: That’s all great stuff. So when we think about active businesses, that’s where we run into challenges with retirement accounts. Now, there are some complex workarounds. I don’t want to take you down too many rabbit holes, but there are some strategies if you want to look up the blocker C corporation where instead of you, your C corp invests in active businesses and your retirement account has stock in the C. But when we think about those advanced strategies, you really got to be ambitious. The juice has got to be worth the squeeze on those types of executions.
Dan Kryzanowski: Awesome. Hey Teresa, I see your question. Can a husband or a wife do the repairs? Dynamite question and the answer is no. Because once again, you, your spouse is part of the linear sort of equation here. You would want to have a dedicated third party that is not part of your linear family, that would even do some things that you may consider basic.
Cool, cool. All right. Now here’s what I’m really excited about next, is 21st century diversification. So I know there’s a bunch here. I know you see my fancy graphic in the middle. But I’m going to take a few minutes because I think a lot of us have a similar sort of portfolio. And I really want to touch on, because I know the spirit tonight was for fellow real estate investors. So I’m happy to kind of open up a little bit here to share how I view things and hopefully some of these tidbits help a little bit. So ultimately, and this is not an exact percentage and don’t take it for, these may or may not be exact deals, but starting from kind of five o’clock, when you think of a 21st century diversified portfolio, I still think yes, there’s a place for stocks and ETFs, corporate bonds. Frankly, at the moment, I just don’t think it’s worth it.
Crypto, great. As Mark mentioned, a great reason why we have self-directed accounts. And private loans. You have a college buddy, she’s starting her first business. You can do a private loan, you can do the terms. I caution sometimes do you want to play lawyer or not? But you can have a collateralized loan. Just as what you do with your piggy bank checking account you can now do with your retirement dollars. So you can be greatly impacting a friend, a collegiate, an ex-coworker as they start the business of their dreams. Super powerful, super awesome. Working counterclockwise, all of us have probably put a chip in a startup. Generally speaking, even the big wins, they take time. So I think 10x in 10 years is a realistic, more so the 10 years part is what I do want to represent.
Why? Frankly, once again, retirement accounts, you cannot withdraw before you’re 59 and a half without early withdrawal penalty. Let’s assume everybody on the call is 40 years old. A startup could be a pretty good investment because you know you can’t touch the investment anyways. Final thing on the right side of the slide here, why I say upside is because, yeah, a lot of these are for the upside gain, it’s not for the yield. Throughout self storage, I was in a similar investment, storage, much like any sort of real estate asset class could have both yield and upside. So I’m not saying this as an absolute, this is a model portfolio. But what’s great here is something like a storage, something like a development that’s going to take time, generally speaking is going to be an equity only. It’s not going to pay dividends, which for your liquid account, that might get you a little antsy.
Once again, the benefit of an IRA, having the time before you can pull out with early withdrawal, you might say, “Great, for a 20 IRR, this is fantastic and I’m even 55 years old. That 100K is going to be 200. I have a 12-year old at home. When I can pull this money out in five years here, he or she’s going to college. I can now cover the cost of private school.” And as Mark mentioned, if this is in a Roth, even better because you will not be paying taxes on a 200 on the back end. So the right side I like to say is my upside. The left side here is yield. You can pick your asset class senior living because I saw a deal like. This is real simple math, I like to joke and I’ll pick on all my Ivy League friends here or my smart Stanford friends, et cetera. For the real smart folks, our doctors, our lawyers, this is very simple math. Guess what? It’s a 12 pref meaning 1% monthly. You put in 100 grand, you get $1,000 dollars a month.
I share this because particularly if you’re raising money, I half joke, but the smarter the folks on the outside, they may have a tough time grasping IRR. Whole bunch of things here. Something as simple as this is like, hey guys, here’s $100, you’re getting a dollar back a month. Super, super simple. And there’s certain offerings that do this, whether it’s on the crowdfunding side or a specific deal that could make sense. For those brave, I don’t want to say brave enough, but if you do your diligence with hard money loans, meaning basically a real estate shop that’ll deal with an individual, not deal with the bank for their debt and you’re basically being the bank to them, you should expect a double-digit return even with an experienced real estate sponsor.
So that’s more on the yield side. And then finally kind of in the lower corner here, and I’ve become more intimate with industrial over the past year, this is where you get the best of both worlds. As I say, the yield and the upside. So the yield, especially something like an industrial, it just prints money, you can get paid monthly. You get a bump on the back end. So what does that mean from a math perspective? Great, hey, I’m getting a few hundred dollars a month and I’m also going to get my principal back in a bump. So I’d like to share particularly for folks, and maybe if you’re quasi taking care of your parents’ finances and they’re over that 59 and a half bump, they may say, “Great, I’m going to put in this a 100K, but as the dividends come because I’m 65 years old, I’m going to take this out without the early withdrawal.” And as Mark alluded to, if it’s a Roth, this is all gravy.
And I’ve seen many retirees, this is a strategy here because they know that they can live off of, let’s say in small town America, the 583 or add a zero if you live on the coast. But then you’re also getting that bump on the back end. So this is kind of what I’ve been drawn to over the past decade. I find it greatly beneficial and exciting. Even today before the call I looked and I had three distributions hit my account, which means I can invest in something new. That extra just 1,500 or $2,000 means I cross another threshold, another minimum where I can invest into a new deal, which is really exciting to me. So that was a bunch. I just want to take a pause if there’s any questions, happy to put on my real estate hat or Mark, if you have anything else you want to touch on in the spirit of IRAs or just in general for real estate, I think this will be good time.
Mark Perlberg: Well, I’m curious how, one of the strategies that sounds appealing to me and I’ve been challenging my clients to think about this is what do you think about hard money lending, if you’re knowledgeable about that industry and have friends who are doing that, what are your thoughts on the profitability of hard money lending among these different strategies you’re talking about?
Dan Kryzanowski: Yeah, I think it’s great. Like anything, I think it’s diligence. Frankly, I think it’s a gut feel. I would say with hard money loans, you want to meet the person in person and probably do it again or, and I won’t go into a rabbit hole, but my least fun investment was a hard money loan. I said, we have baby bliss. My wife was the one that was physically pregnant, but I was in whatever mental state and I said, “Oh, this is great. It’s going to be a three month term.” And I tried to play lawyer and doc it up myself. Three months it didn’t happen. Three more months, it didn’t happen. Then I learned about Texas laws where when the loan was placed or who placed it didn’t really matter. So I was totally, I was lucky to get a few cents back on my dollar.
And frankly, with that, I would say if you have a spouse, to trust a friend for hard money or just in general, it’s always getting a second voice on anything to make sure you’re not enamored with the location, this and that. And I’d say just a good blanket statement, hopefully, this is no surprise, I think a few years ago it may have been, is that there’s a limited supply of folks that want to do certain construction. So the big entities, the big multi-family, the corporates, they’re going to have their teams, they’re going to have their subcontractors. Somebody, even if he or she is a great person, if this is their first time flipping a house, they may have those construction folks on the first week, but then maybe not the second week or the third week. And that hard money gets really expensive. And so you have to just recognize, I think even if it’s your best friend, recognize the macro situation before you do that first check.
And like anything I would suggest, especially like a hard money side, whatever is the minimum, even if it’s 5K or 10 K, maybe you go in from that level. And then a la IRA, once again, I would suggest doing your diligence so you feel fully warm and fuzzy inside. But maybe do pre-tax because worst case, stuff hits the fan, well, this is pre-tax money you never pay tax on. I’m not saying you ever want to lose money, but what is the best worst case scenario? That’s a good way to test the waters. And as we talk about the solo 401k, we can talk about the benefits of the pre-tax bucket and the Roth or post-tax bucket.
Mark Perlberg: Great stuff. Yeah.
Dan Kryzanowski: Awesome. So two more slides, just with the real estate hat. I like to say, so let’s assume we’re comfortable with, let’s pick on industrial in Texas because that’s where I am. So let’s say when those boxes are kind of checked, I think the next question is, do you want yield, do you want upside or do you want both? And the easy answer is both. But as I said, maybe that double-digit yield is great. Maybe the potential for 20% plus upside is great. Here, I like to call a home run deal. So if we have any UTA or TCU grads, give yourself a big shout-out now. But yeah, this is, in many ways, a very attractive sort of offering because, and I won’t go into deep detail, but you’re looking at an 8% pref, that’s a really strong return in this environment. You’re getting some backend split too.
So a waterfall, and I won’t go into deep detail. But usually when you see numbers like 70/30, 80/20, this means the investor is getting the bulk of it, the sponsor, the person putting the sweat equity is going to get the smaller part. Well, if they do a rockstar job that might say, “Hey, after a 20% IRR, maybe it goes to 60/40.” So the sponsor gets a little more on that. Much like when you have a marginal tax rate, the sponsor would benefit if this is a rockstar sort of deal.
So side note, for folks that are considering geographies, Texas is hot. I’m down here, I’m happy to talk offline on that. And separately, student housing, one thing I learned last week is that unlike traditional multi-family where you kind of lease on an ongoing basis, student housing, if you don’t have the leases signed six months before the next fall semester, you’re SOL. You can literally be in the teens for your occupancy, which means you’re going to default on your loan enough to give it back to the bank.
Mark, I think one of the earlier questions we had is who do I invest with? What do I consider? I think you look the benefit here, you really went on the buy. So who can you buy from, especially in the sizzly hot market across the country, who can you buy from? First of all, off market, probably not through a broker. And also where it’s one of these situations where the bank or the lender, whoever’s holding, it’s like hot potato, they just need to get rid of it. So you’re going to buy at a much more discounted rate.
And the other thing, and everybody’s board can look different. But I do think take a little emotion out of this, and this is just a cute little tic-tac toe board. But what is your investor mandate? And I’m not going to go into everything, but I do think it’s fair because I mean you can go bonkers just looking at the different sort of multi-family deals. But I would say starting with the center square, hey, how important is geography asset type, tenant? Do you have a minimum distribution? Do you have a need for, is it quarterly, is it monthly? Do you get skittish if the loan to value is above a certain rate? From the leasing, do you want it to be triple net?
And then I think duration is also something that when we talked before about yield and upside, I think duration is also something, is it kind of a sub three or is it a five years at a seven to 10 year plus? And especially in IRA land, as Mark says, when you look holistically, when you’re looking to retire, when you’re going to give up the W2 income, it could be important the duration because you might be pulling out some of the principle from your IRA or you frankly might want it to go on longer. So you have that lengthier dividend stream. So Mark, I’d love to get your take if there’s anything kind of in your tic-tac toe board or anybody else on the call that they look at as part of their due diligence.
Mark Perlberg: Does anybody want to tune in? See what we got here. How about Brian? You guys are a little shy right now.
Dan Kryzanowski: All right. I’m going to put back on my IRA hat here and I’ll move pretty quickly. And friends, you will have this deck to you offline too, so don’t feel like you have to screenshot and such. So, all right, self-directed accounts, title up here. Self-directed, a lot of people think they self-direct, this is capital S, capital D, we’re going to talk traditional Roth and then the solo 401k. Big thing here, another big takeaway is checkbook control. As it sounds, you have access to your money 24/7 to invest in what you want and when you want. The reason I believe SD IRAs, which once again, have been around and legal since the 1970s, have not been, as I say, country club cool, is that it was a hassle to access your money. Let’s say Mark flips houses, or I’ll pick on Brian Miller here and I send him a check for 25K every quarter, it’s ridiculous that both Brian and I would be on the phone with some third party custodian for purposes of filling out their paperwork.
Once again, this eliminates all. This is as if you’re investing through your piggy bank checking account. Super powerful for both the investor and the sponsor. 60 seconds or less, probably do it in 30 because I think you guys are pretty proficient here. Traditional means pre-tax. And I’ll let Mark share some sizzle on this. But from the IRA land, whether it’s in the SD IRA or the solo 401k, traditional is pre-tax. And then Roth, as you know, think of the seed versus tree sort of example here. This is going to be great on the back end. Mark, I don’t know if you have anything else.
Mark Perlberg: Oh, absolutely. So here’s something, a strategy that I love to think about. Now, remember with the Roth, obviously, you’re not reducing your taxes right away. But once it’s in that Roth, you’re not going to be paying taxes on it. Well, there are some other circumstances which we don’t have a whole lot of time to go into what UDFI is, unrelated debt-finance income. But at a high level, if you’re looking for a great strategy here, if you own property and your Roth IRA and you eventually pay off the mortgage, you eliminate the leverage on that, we eliminate any of the taxes on this Roth.
And if you are investing in property in a highly appreciating market, so let’s say you get an Airbnb in California where the margins are fantastic and the properties are appreciating at a value, at a rapid rate here, some of you guys are worried about the 1031 going away or the bump up of the capital gains tax rates. And in the future, you’re anticipating you’ll be in a higher tax rate. You pay off the mortgage of that property that you owned in your Roth IRA, you could sell that property tax-free. So that’s a wonderful opportunity right there with the Roth.
Dan Kryzanowski: And a follow on folks, and I know some folks, I feel they play the fear card a little bit with UDFI. For me as an investor, you have different buckets of money. You have your liquid and your retirement. And it kind of says, well, my retirement, I might be earning 2% in the bond fund versus real estate even. And personally, I’ve not been remotely impacted by UDFI. I’ve never turned down a deal, even if there was that potential, because let’s say it’s paying like a 12 pref, it’s still a lot better than the 2%. So that’s great color. Thank you, Mark.
Mark Perlberg: Yeah, and even if you have UDFI, that’s the only income attributed to the leveraged part of your income, you’re still seeing the benefit of leveraging your accounts with retirement accounts instead of just putting into a mutual fund and getting whatever. What do you think you’re going to get from a mutual fund? You’re going to pay fees and you may get somewhere from a seven to 10% return on your own cash. You know may be paying some taxes on it, but you’re making profits on the leveraged assets, other people’s money. You’re leveraging the banks and also you still have depreciation and other ways that we can offset a good chunk of that real estate income.
Dan Kryzanowski: And folks, there’ll be some stuff in the slides plus, I guess it’s almost seven o’clock, so we’ll say kick-ass, not FAQ, which we call a knowledge base that really goes into deep details so you all have access to that. I won’t go in deep here, but this is kind of the nuts and bolts of checkbook control within a self-directed IRA. Basically, you’re funding your IRA, custodian in the background honors the IRA, the LLC as the asset, and then you can have multiple investments. So point here is it gives you checkbook control.
The beauty here, for the solo 401k, also known as the QRP individual 401k. And the basis here to open this account is the spirit to have qualified self-employed income. So once again, what’s nice, the government says, well this is not, it’s not day trading, it’s not collecting a rent check. What it is you’re a one person consultant, you’re a husband, wife team without W2 employees. Even if say, hey, you like to Uber drive on the weekend, that qualifies you to open this account. And then within here, what I love is that we talked before kind of the pre-tax and post-tax, you can have two unique, I like to call them checking accounts to delineate between your pre-tax and your post-tax. Whereas, in IRA land, you would need two separate accounts, separate EINs, et cetera, two separate fee payments. All this is under the umbrella of one solo 401k.
And what’s going to be that it’s checkbook and control, just like you go click a button in online banking, let’s say you’re going to invest in the next, pick your stock, Apple, Tesla, et cetera, you can do that, basically move the money, do a raw conversion on the fly. And then whatever money you move from pre-text to post-tax, you’ll pay next year’s tax year for a conversion.
But these are just some of the super, super powerful points. And two other things with contribution rates and loaning to yourself. But before getting to that, Mark, was there anything else you wanted to touch on?
Mark Perlberg: This is good.
Dan Kryzanowski: Awesome. All right. So many good things in the solo K. I’ll just give you a little teaser here. And two things I want to talk about is the high contribution rate and it’s a loan to yourself. So let’s get right to it. Once again, solo 401k, anybody at any time, you can do five, six, 7,000 into your IRA. With a solo 401k, it’s actually in the 50s. So let’s break this down a little. Let’s say you’re a solo consultant, much like your W2 friends, it’s the 19,500 right off the bat. In addition, and this is a genius to this account, you can do 20% of your net earnings.
So let’s just use round numbers. You have 100K as a consultant. The 19,500, the other 20,000, 39,500. Boom. So it’s a lot more if you were W2. Let’s say husband, wife team, actually flower shops make a boatload of money. I know some folks that probably gross half a million as a husband wife team. Guess what? Right off the bat, 19,500, 19,500. Boom, that first 39,000 and then the 20% of share. They’re putting away over 100 thousand. And if you’re over 50 years old, add another 6,500 to it. So once again, particularly as folks, whether you choose or life may take you, you’re like, “Wow, I’m a consultant. My W2 time is kind of over.” This is no joke. This 60,000 plus is what you could contribute every year. Lower your AGI, your taxes now to go into the future. It’s just a tremendous benefit of the solo K.
Awesome. And then one final one. So this is for all my fellow startup founders out here. You can loan to yourself, kind of with your day job 401k usually has to be a hardship. Beautiful thing about the solo 401k, there’s no restrictions. You want to go on a boat, you want to go on vacation. The most common thing I think is sometimes frankly say, “Listen, I need to be liquid for something else I’m doing on the side.” This becomes cash. It’s not restrictive cash. You can do what you want with it.
So let’s say I have an idea for a startup, I don’t want to go to friends and family yet. If it works out well, my company will pay me back. If not, I’m going to get a W2 in a year anyway. So you can borrow 50K or half the value of your plan. See many startup founders do this. Some folks from real estate also do this just almost as a slush fund. So as long as you pay yourself back over five years. So once again, super powerful. And there’s even, we may not have time tonight, but strategies Mark know of that different ways, whether it’s the back door, the mega Roth, different ways to frankly boost up your balance, your principle amount in your solo 401k by taking advantage of this loan.
Mark Perlberg: Yeah, so here’s something that when you’re talking about borrowing, which I think is a wonderful idea because a lot of my clients just quit their jobs. And when you just quit your job to go full-time into real estate and you’re maybe in your earlier stages, one of the greatest bottlenecks is access to capital.
So what they don’t realize is you can borrow from these 401ks as you just discussed. And when you take this money out, it’s a non-taxable event. And sure, you’re paying interest, but you’re paying interest back into your self-directed 401k and it’s going to grow in that tax deferred bucket. And so I had a client recently and he’s asking, some ideas on how we can get together some capital to fund a $6 million short-term rental project and I said, “How much do you have from your former job that you just quit? And how much does your wife have?” Because she just quit her job. And between just being resourceful and thinking about all of these strategies, we were able to free up enough capital to put into this property. And what are we going to do with that property? We’re going to run the cost segregation studies and we’re going to offset other sources of income and drive down the taxes.
Dan Kryzanowski: Amen. Sounds fantastic. All right, two more quick slides and then hopefully we have a bit of questions here. As I said, the benefit here with the likes of a Rocket Dollar, and there’s others out there, it’s country club cool to say we’re better than Geico. You can sign up in five minutes or less. If you wanted the details behind it, it really is. Basically, all that it is, personal information, picture of your driver’s license, credit card, you e-sign a few things, a few things happen over the next few days. It’s super, super simple, whether it’s a solo K or the self-directed IRA. So rocketdollar.com/learn. As you can see, just on the left side of the page, this was actually an award-winning knowledge base and this is really good. So from a self-education standpoint, this is powerful. And if you’re raising money, we would never expect that you would know the deepest details here, but you do have access to it in one click. I saw a question. There you go, Mark. I love it.
Mark Perlberg: Also, and Dan, on that topic, so we’re talking about what you can do with your retirement accounts and what you can invest your retirement accounts into and take some funds out potentially for your own endeavors. But can you tell me also about how you can partner, let’s say you’re trying to raise capital and you know some people with deep pockets, how can you partner with people with retirement accounts and present to them some opportunities where they can be in on your deal and you can get some capital with them to fund some projects?
Dan Kryzanowski: As we shared at the beginning, and close your eyes for a minute here, we’re going to go backwards a little bit. So biggest takeaway here if you’re raising money is that your investors are aware that they can use their retirement dollars. Now, how you get this message? Gentleman here in town, a buddy, Tommy Prate. And for years he shared with his folks and his monthly newsletter, he said, “Did you know can use your retirement dollars? Did you know on my next deal, on this deal, on my past deal.” Just this little sentence. And guess what? 15 to 20% of his funds came from retirement dollars. And the beauty of it was there was times when somebody said, “Wow, I have three kids in college, I’m broke, but I worked for GE for 30 years and I have a million dollar 401k. I’m going to roll that into a self-directed.” Now, I can invest in your next deal. Fantastic. That’s kind of the golden story. Otherwise, I think through this education, Rocket Dollar and others for sponsors that do engage, there’s a fair amount of education that goes here. I think all parties like it.
I do commend the folks across a fair number of the legacy custodians are having open sessions and they don’t care if you’re an investor, if you’re raising money, if you’re a vendor, everybody talks, you get your 30 seconds on stage. But it’s very collaborative to once again expand the education. But the biggest thing is just something as simple as a sentence here. I would say, and this will lead us into I think Rocket Dollar’s offering here is that Rocket Dollar, being very tech friendly, there is a private Facebook page for investors. And like anything, if somebody sees that investor with ABC real estate is sharing education to the 1,000 plus people that have access to this Facebook page, it is possible then that these people are going to inquire or talk offline. So just to be fair, Rocket Dollar or others, it’s not a crowdfunding site, it’s not an asset manager.
But what it is, let me go back to the slide here, it’s a checkbook control. So my final slide here of the evening, this isn’t something crazy I did during COVID here on the right side. This is the true fee schedule for some of your legacy folks. Like, wow, such a headache. And do I really want to tell my friends about this? Whereas, as I’m looking, maybe your right side, my left here, the checkbook control, it’s very simple. It’s a one time sign up, it’s $15 a month flat. And that’s regardless if you’re moving over 20K if you’re one investment are a million dollars and you’re going to put a 100K and 10 investments. And as an added thanks tonight, as I like to joke, if you can spell it, you can get it. I’ll put this in the chat also. So $50 off for any future Rocket Dollar accounts with my personal code here.
And just for reference also, outside of just the headache of all the fine print, I’d say the likes of Rocket Dollar, more FinTech friendly shops, are probably about a half or so of the price than the legacy players out there. So with that to Mark and friends, I greatly appreciate your time. Very open to talk offline. LinkedIn’s a great place. Please reference that we kind of met here. You see my email, also. I think RocketDollar.com/learn is another great resource. And particularly for folks raising money, if you did want to have a deeper chat, let’s book a time and then we’ll go from there.
Mark Perlberg: Yeah, absolutely. And Dan, so anything else you want to just… If there’s anything else? It sounds like we have all your contact information and your call to action. And so everybody, Dan’s been a great resource and Rocket Dollar has been fantastic in simplifying the process. If you have any follow up questions, and also, for some of you guys, there was a lot to take in. So I’m going to send the link to the recording of this to anyone who has registered for the event. It’s also going to be on YouTube and Facebook, as I said earlier and on my website. Reach out to Dan, you have his info, or if you miss the slides, you could always replay him through those resources. And Dan, any closing words? Anything else? Any final calls to actions?
Dan Kryzanowski: No. And sorry I didn’t do this at the beginning, but if folks don’t mind chiming, how many folks are an investor and how many folks are on the other side raising money, and how many are both?
Mark Perlberg: We got Phil is raising money right now. Okay.
Dan Kryzanowski: Nice.
Mark Perlberg: There we go. And Dan, if you can put your email in the chat as well for-
Dan Kryzanowski: Absolutely. Brian raising money, awesome. Hey, wow, this is awesome. Cool, cool.
Mark Perlberg: Great stuff. So yeah, you wanted to touch on that and raising money.
Dan Kryzanowski: Yeah. I want to respect folks’ time, but briefly, I said I don’t lead… Once again, you want to make sure it’s right for your investors. But because I said what you’re going to find out is on a regular basis, it may not be them. I I talked to one guy and it’s going to be his brother. It is real. Folks in their mid 50s, a few kids in college, but was corporate for a while, really wants to get into these sort of deals. So that’s fantastic. And yeah, Philip, I love how you’re playing both sides of the coin. I do the same.
From a fundraising standpoint, we’re in a social media world, even if you’re kind of a Luddite like me. Video is exponentially more impactful than just words these days. It was 100 plus degrees, I was boots on the ground in Arlington and Fort Worth last week. I think it’s pretty powerful when you can talk to say, “Listen, student housing is not Animal House. It’s actually something frankly, that wow, I’d say most folks in their 30s making six figures would love to live it.” Why? Because this is a private school. And then you look at something in Arlington, “Why is this a great property?” Well, it’s kind of like old school brick. It’s very secure and it has all the amenities inside. So you have the safety and walkability. I just told you that. But when you see it of a video, and I’m walking by, pretty powerful.
I have three people today say, “I like your CRE post.” And I’ll be honest with you, I’m posting only 10 or 20% of the time versus when I was full-time with Rocket Dollar, when we first launched the product. And I’m still getting people saying, “Thank you for the education. Thank you.” And I always try to give something to say, “Hey, this is kind of real deal. This is what you look at. Here’s some real numbers.” And for me, that’s really helpful. For folks that raising money, if your niche is self storage, I would post so much about that. A lot of stuff, when you’re close to the fire, it’s going to be in your head. Even if it’s like, “Hey, I’m doing workforce housing in Baltimore.” Then share that niche. I mean, that’s amazing.
So like I said with myself, I had the benefit at Rocket Dollar to talk to 500 sponsors across the country. And I invested in probably 10 or 15 and I became most comfortable with BV Capital. Why is that? Everybody I felt had a very strong superpower. For example, one of the partners literally has banked the whole state, took Washington Mutual back in the 2000s. So I’m dating myself, but in a good way here, from sub billion to 8 billion, particularly in industrial. I never heard of industrial. I didn’t realize, when we think of retail multi-family, it’s one, three, five, [inaudible]. When you talk industrial, it’s an eight-hour circle. Super powerful from that standpoint. And guess what? Texas isn’t going anywhere. Mexico’s not going anywhere. The port’s coming in. Industrial Texas, when you look at risk return profiles, this is as close to risk-free as you get out there.
So we partnered with who we felt, it’s a company called Archway, the top industrial shop. Flip side, we talked about the 6040, the barbell strategy. So what’s the sizzle? What replaces the stock? It’s having the relationships to buy something off market where you’re buying at, quote, unquote, X cents at the dollar, or you’re buying at a six cap, even though it’s trading at a five cap rate. And this is what we do.
And a final thing, I feel our offerings, it works for the individuals, it works for registered investment advisors and it also works for the family offices and pensions. Because once again, you’re either buying at such a favorable cap rate or you have something where say, hey, it’s a 15 year triple net lease versus a five-year fund. And when you look at that and know these are mission critical properties are really more mission critical, it means you’re going to get investment advisors really excited, and that moves a lot of money. So I know that’s a bunch that I’m hopping a little bit here. But if any of that resonates, please reach out offline, especially my fellow fundraisers. I’m happy to kind of fully share where I go, what I learn. And there are some masterminds out there that I think have a reasonable sort of buy-in, and I’m happy to share my experiences with them maybe based on where you are in your journey. So I’ll even pop in my cell phone here, so if somebody gets real excited, you can call me on the drive home. So it’s all good.
Mark Perlberg: Yeah. And another thing is, so Dan is not only has he been part of Rocket Dollar, but he is also raising capital and communicating with retirement account investors. So he’s a great resource to look at things on both sides, or potentially if you’re looking for a place to park some of your capital from self-directed account into real estate, he’s a great person to potentially form a relationship with.
Also, if you’re looking to partner with people, consider the requirements and the compliancy issues regarding having passive investors into your real estate investments. Because now, we got to think about the SEC regulations and whether they are sophisticated or accredited investors. You need a good attorney to write this off and do it the right way. So you want to talk to your CPA and definitely get an attorney involved so you’re maintaining compliance and protecting yourself and the investor. My best resource as an attorney has been Dugan Kelley on this topic, who works with lots of syndicators.
Dan Kryzanowski: And Mark, that’s sage advice. Once again, my friends raising money, first of all, Dugan’s best in breed. So Mark’s relationships are top notch. Second, you’re going to find folks that, and I’ll pick on kind of my engineering threads, that they’re too humble because they’re like, “Oh, well I only made 190 and my spouse only made 145.” I’m like, “Guys that totals to 300.” Or, “I don’t want to tell you I have a consulting thing on the side. I’m a solopreneur also on the side.” I’m like, “That gets you over a certain amount.”
So real quick on accredited. 200, 300 if you file jointly and a million dollars net worth, that’s out of your primary asset, once again, we’re talking IRAs here, your IRA can be included in that million dollars. So for folks raising money, and frankly, if you’re talking to W2 buddies and you guys have been around 20 years, they’re probably going to have a very sizable IRA. And as the walk of life plays out, they’re going to be inheriting a lot of money. A million is frankly not as huge of a number, particularly if you’re on the coast in big cities combined. So once again, and I think it’s great that I would use Mark as a resource. Mark, you can share more about just the process and the form. But it’s awesome that this natural relationship is here. So I’d say for Phillip, Teresa, Brian, you guys are many steps ahead of other folks just for the comfort level as you’re bringing new accredited investors to the window.
Mark Perlberg: Fantastic. So you got our information. I hope you guys got a lot of value on this conversation. There are so many different ways we can look at it, as you can tell. So unless you have any other questions, we’re about to wrap this up. Thanks a lot for your time, everyone. And to all you guys listening to the recorded version, I hope you found a lot of value in this video, lots of great opportunities to consider here. You have my information if you want to do a discovery session. Usually that is free and we will talk about, we can assess what opportunities are available if you were to implement a tax strategy. Just email me if you’re interested. Love to talk to you or if you want to just keep in touch, you have our information. Thanks again for your time. I think now is a good time to wrap it up and to everybody, I’m about to end the recording. Thanks for tuning in and we’ll keep in touch.