What Will We Cover? This presentation is designed to inform you of youroptions regarding residential real estate investments. In it, you’ll learn: 1. How real estate compares to other assets for growth potential 2. The benefits of investing in real estate 3. How you can use retirement funds to invest in real estate
Tenets: My Promise to You I am committed to providing the highest quality service to you through focus, honesty, and integrity. As a CIAS, I adhere to the following tenets:1. I always do what is best for you, and will never let you close on a bad deal.2. Real estate should be purchased for cash flow only; appreciation is a bonus.3. Real estate investing is a non-emotional event; I always do the math.4. You, as an investor, play a vital role in the real estate market and deserve to be treated accordingly.
Appreciation• Appreciation should always be considered a bonus• Yearly home appreciation averaged more than 5% over past 40 years• You can help property appreciate (improvements)• Home appreciation less volatile than the stock market
How Depreciation Works• Purchase a property worth $100,000. $85,000 worth is attributed to the improvement (house).• The basis for depreciation is $85,000.• Calculate the first year’s depreciation based on the month of purchase.• Every year afterwards (until 27.5 years), deduct 3.636% from the basis.•Every year, deduct $3,090.60 in taxes.
Traditional IRAs Individual Retirement Account (IRA):•Held in trust by bank, credit union, savings andloan, or other IRS-approved institution‣Custodian distributes, receives, and holds funds for theinvestor•Shelters retirement savings from certain taxesand lawsuits•Typically invested in stocks, bonds, and mutualfunds
Self-Directed IRAs• Same rules and restrictions as traditional IRAs except...• The investor directly chooses how the IRA invests his or her funds‣ Can invest in real estate‣ Generally, any retirement funds can be rolled over into an SD IRA
Retirement Savings in the US• 44% of retirement savings in mutual funds‣ 3.43 trillion dollars in mutual funds‣ 90.2 million individual investors• 52% of retirement plans in other investments‣ 4.05 trillion dollars in other investments (stock market)‣ 86.2 million individual investors• 4% of retirement plans in SD IRAs‣ 0.27 trillion dollars, or 312 billion dollars (other investments)‣ 3.6 million individual investors
SD IRA Permitted Investments• Residential Real Estate • Single Family Homes • Multi-Family Homes • Apartments• Commercial Real Estate• Undeveloped or Raw Land• Real Estate Notes (mortgages & deeds of trusts)• Promissory Notes• Private Limited Partnerships, LLCs & C-Corps• Tax Lien Certificates
Borrowing Money with an SD IRAIRS requires a non-recourse loan•Non-recourse loan restrictions‣Loan-to-Value Ratio (max): - 70% for Single-Family Residence - 50-65% for Multi-Family & Condo‣Debt service Ratio: varies - Typically 1.25, depending on property‣Interest rate: typically 1-1.5% higher‣Reserves: 10-20% of loan (depending onproperty)
Two Scenarios: Investor A and Investor B both contribute $5,000 annually to an IRAInvestor A: Traditional IRA‣Invested in mutual fund earning 5% annuallyInvestor B: SD IRA‣Purchased a property for cash flow in addition to 5%annual appreciation