All Forum Posts by: Adam Hershman

 Hey Antonio,

It is a common misconception that soft pulls will hurt your score if there is a large cumulative amount of them. It really isn't the case. A soft credit check will never ever have any consequence on your credit score. Soft pulls are things like getting pre-approved for a credit card, checking your credit score with a credit monitoring service, and businesses you already have a credit account with checking up on you. Did you know that companies can pull a soft credit check without your permission?

The biggest determining factor is whether you have applied for credit. If you filled out an application for a loan of some sort, it will likely result in a hard pull. However, if you filled out an online request for a quote or pre-approval with your bank, they would make a soft inquiry that results in no harm to your credit.

Adam

 Hey Jon,

Sounds good, anything suspicious thus far? I wouldn't want to violate forum rules. Thanks for the permission to discuss SDIRA accounts so far...

Adam

@William Bray

You hit the nail on the head. I work for a self-directed IRA custodian that specializes in alternative asset custody, and the majority of my day is spent talking to investors who are absolutely dumbfounded by the breadth of investment options, and that they have never heard of this before.

Unfortunately I think a lot of the stigma of alternative asset SD IRAs not being allowed, or even being illegal, has come from professionals (CPAs, Attorneys) who are also ill informed about the concept, and immediately jump to the conclusions. 

For the record, I have had both attorneys and CPAs tell me that self directed IRA investments in alternative assets is down right illegal. The fact is the government agencies don't make any distinctions. IRAs are covered by ERISA regulations, which formed the concept of an IRA and the rules governing them. Nowhere in ERISA regs is there a qualification for only holding assets that are securitized or offered through prospectus, PPM (Regulation D) etc, or any other determining factor. The IRS does provide a list of assets that are explicitly prohibited, life insurance, S-Corps, and collectibles (Art, rugs, jewelry, cars, alcohol, non investment grade/Bullion precious metals, etc.) My favorite point to bring up when someone tells me that investing in alternative assets in an IRA is illegal is that the IRS prohibits NON INVESTMENT GRADE precious metals...indicating that investment grade precious metals would be fine, otherwise why make the distinction on purity? The same holds true for RE, if the IRS is concerned enough to list alcohol collections as a prohibited asset, is it likely that they forgot to mention that RE is also not allowed? I know we all poke fun at the IRS for good reason, and they usually do a lot of things that seem to border on idiotic, but they can't be that dumb.

Adam

 Great Point William,

It's actually only 2% of the $24.2 Trillion of retirement assets in the US that are "self directed" however, that does include traditional investment accounts that are self directed such as Charles Schwab, Merrill Edge, TD Ameritrade, etc. So in terms of alternative assets, that 2% actually gets much smaller. 

It is incredible to think of what kind of impact just double the amount of retirement funds being invested in alternative assets like RE would do to respective markets. 

Adam

 I get what your saying. If you're going to pay taxes on profits, you don't then want those assets in an account that you will later have to pay taxes on again. That isn't exactly how the UBIT works, and it is more a tax because you are using a strategy that the IRS considers a business to hopefully make a higher return and offset the taxes. But I can certainly understand not wanting those funds to be taxed twice. 

One other thing to remember $100,000 in your IRA cost you $100,000 to aquire; $100,000 post tax funds cost most people around $125,000 to acquire, while you do have to pay those taxes later, it is more capital to invest in the meantime.

Adam

 Hey Dan, 

You are absolutely right, once you put an asset in your SD IRA, you have to become a hands off party to that asset, and so will certain family members. The thing to remember in this case, and why a lot of contractors, and people in the construction business just like you, are using a SD IRA to flip homes (not that I am advocating for or against it) is because they know the business. They are the people who are best poised to make a decision on how much it will take to fix the house, and how the finished product will affect the price of the house. This also means you can negotiate with contractors you hire to work on the house from a better position, the average homeowner or RE investor relies heavily on a contractors price bids. You on the other hand would be able to see exactly where a contractors mark up or profit would be in a proposal, and work to minimize it (and therefore maximize your return).

So yes there are a lot of people, like you, who do this outside of the IRA to be able to contribute "sweat equity" so to speak to improve the house, but there is no reason you can't do the same thing in your SD IRA with less time investment, and if you think about the hours you pay yourself to do the work in the non retirement assets, you'll find that hiring someone in a tax sheltered asset vs doing the work yourself in a non sheltered asset, works out to be pretty similar returns. 

Basically, if you think flipping homes is the best return on your personal money, why wouldn't it also be the best return on your retirement money as well? Why not do it in both?

Just something to keep in mind.

Adam

 Hey Constance,

It is not required that a 401k plan have a loan provision, but it is fairly common with most employer plans. It's unfortunate they don't allow for loans, you may want to check about in service distributions as well, but it is usually less likely to be offered than a loan provision. 

I can't really speak to other ways to get started, as I'm certainly not an RE pro, more of a retirement financial pro, but I am sure you will get some excellent ideas.

Adam

@Joshua MassariIt is very rare to have a blocking C corp in a SDIRA simply because the amount of UBIT generated would have to be pretty massive to outweigh the benefits of the LLC acting as a disregarded entity for the IRA.

 Hey Nick,

I can't really speak as a RE pro, but I am somewhat of a technical analysis/trend guy so I do have an opinion on this. I think investors are hungry for multi-family properties of all kinds for two major reasons. First, the market is rebounding, it simply makes buying property more natural to more investors. Second, astute investors are betting that the very vast majority of people who have wanted to buy a house over the last 5 years, have bought a house. There are very few holdouts who are still "looking for the bottom of the market" or people who couldn't be financed or were waiting for an even lower ridiculously low rate. 

Additionally it probably wont be this easy or cheap to buy a house for a long time, because most people believe the overall RE trend has stabilized and is bullish, add to that the fact that money will probably not be cheaper to borrow than it is now for 10-20 years (if ever), and you can see why investors are betting that the new homeowner trend will shrink while the renter trend increases. 

Right now houses are cheap, money is cheap, and there are tons of assistance programs so we are likely to not see any major increase in home purchases as primary residences in the near term, and in fact if the market becomes tighter in terms of inventory, lending restrictions become tighter, or interest rates rise then most people would expect a decline in the number of home purchases as a primary residence. 

Adam

@Account Closed said, the chances that your husbands current 401k administrator allows in service distributions is slim. He also has the option of taking a loan from his 401k for up to $50,000 or in your case 50% of the vested balance (whichever is less). There are a few good things about this loan, first, the 401k plan is much more likely to have a loan provision than an in service distribution provision. Second, the loan is a personal loan that you pay back to your 401k at prime rate +1% usually, so you can use it for whatever purpose you want, including a down payment on property. 

As Dmitriy mentioned, a solo 401k is the ultimate retirement tool, it allows you complete freedom for investing with minimal fees, and complete control. There are some requirements to setting one up, which is you must be self employed and your business can not employ any full time employees other than your spouse. Additionally the business must show income (can be a very small amount), and remember unless your business is making substantial income, this is not a good vehicle for contributions, as the limits will be set depending on your earnings. 

Adam