Maximizing Your Options – Self-Directed IRAs and Real Estate Investing

The perception of retirement savings is that the money has to be invested in traditional avenues like CDs, bonds, stocks, and funds. However, there are a large number of non-traditional investment options that are available through an increasingly popular type of retirement account, called a self-directed IRA. Self-directed IRAs let the individual investor decide where to invest their money based on their own expertise – and one of the most common investments is in the opportunity-rich real market.

How Real Estate Investing through an IRA Works

Individual retirement accounts (IRAs) make up more than $2 trillion of investment assets, about 20% of the total assets in retirement plans. While about 98% of these IRAs are invested in traditional areas like mutual funds and stocks, a large number of IRA holders are switching to self-directed IRAs, which let them decide where to invest their money. In fact, the amount of assets held self-directed IRAs has more than doubled in the last five years, representing tens of billions of dollars in assets.

Most self-directed IRA funds are spent in real estate, and virtually any kind of property is allowed for investment: land, commercial properties, office buildings, shopping and retail centers, single family homes, rental units, condos and multi-tenant buildings. The only limit for real estate investments is that they cannot directly benefit the account holder or a near relative (such as buying an investment property and then using it as your primary residence).

There are three different ways that IRA funds can be invested in real estate:

o By purchasing the property outright. In this case, the assets in the IRA are used to buy the property entirely.

o By supplying a deposit or down payment. The IRA fund can be leveraged to get a mortgage on a property, with the property used as collateral. This minimizes personal risk and can greatly increase the overall value of your investment.

o By buying a property as part of an investment group. As long as the property deed shows your undivided interest in the property, it’s available to your self-directed IRA for investment.

When using a self-directed IRA to invest in real estate, you select the property, negotiate the price, and find the lending institution, while an escrow account is created in the IRA trustee’s name and the IRA trustee performs the actual transaction. The property is then held as part of the account’s assets. This is analogous to picking a stock with great dividends and instructing your IRA advisor to purchase a certain number of shares.

What an IRA Trustee Means

The structure of self-directed IRAs provides a balance between independent real estate investment control and experienced investment professionals. For any self-directed IRA, there has to be a qualified custodian, or trustee, for the account. The trustee understands all legal and tax prohibitions on investments, manages the actual retirement account, handles administrative tasks and carries out all of the actual transactions. The trustee also offers professional advice as you plan your investment strategy, which is particularly important for long-term investing in real estate. All account funds are held in an escrow account managed by the trustee.

The self-directed IRA trustee has an integral role in whether you successfully invest in real estate with your IRA. Even major investment companies may not have experience with self-directed IRAs or real estate investing, and knowledge matters. For example, the profits from a self-directed IRA may be subject to unrelated business income taxes (UBTI) because of the nature of the investment, while depreciation and expenses for the property are calculated differently. (This is in sections 511-514 of the IRS tax code.) An experienced IRA trustee will know all the liabilities and incentives available.

Most importantly, ask about investment goals and options; get involved and be willing to take control of your investments. The most important asset the IRA trustee offers is strategic, experienced planning. Trust Administration Services specializes in IRA-funded real estate investing, along with other self-directed IRA investment plans, with billions of dollars in assets.

Network Marketing – Is Your Business Legal

One of the biggest challenges facing the network marketer is the poor reputation the industry has earned over the years. Most of this reputation has been created by illegal and fly-by-night businesses that have been created with the express purpose of fleecing their distributors by running illegal pyramid schemes.

Most people, when approached about joining a network marketing business, do not know the questions to ask. They tend to apply what they know about conventional business to network marketing. Unfortunately things that make sense in conventional business are very often either unethical or illegal in network marketing. Many states have enacted law specifically designed control network marketing businesses. Typical examples are:

High entry cost. – Business cost money to start so a fee of hundreds or thousands of dollars does not seem unreasonable.
Large inventory purchase. – “You need something to sell don’t you.”
Making commissions for signing up new distributors or making profits from volume sale to new distributors.
“We will pay you $50 for each distributor you sign up in your front line” or “All you need to do is buy $3000 in inventory and sell the same to your new distributors.”
Over the years while contacting people about my network marketing business I have found people who had been recently approached about joining a network marketing business. I always suggest that they contact the Direct Selling Education Foundation for their publication “Pyramid Schemes: Not What They Seem!” to determine if the business they are considering is legitimate. Some of the suggestions are:

Start up costs should be reasonable. Entry costs for legitimate network marketing business should be relatively small. The fees may include the cost of a sales kit sold at or below company cost.
Companies that require inventory should have a “buy back” policy for distributors that wish to quit the business. Many states and the Direct Selling Association require buybacks of at least a 90% of the original cost.
Are profits made primarily on the sale of product to the end user. Pyramid schemes make their profits on volume sales to new recruits.
Take your time. Never be pressured to sign up right away. Ask to meet successful distributors.Find out about the company.
Find out where they are located. Who are the officers of company? What is their history?
Are they members of the Direct Selling Association and have subscribed to the Code of Ethics of the DSA.
Network Marketing is one of the most effective ways of starting and running your own business. With effort and the willingness to work hard you can develop a strong secondary or primary income. Just make sure that the opportunity you are investigating is a legal business.

Beware Of The Temptation Direct Selling Brings

Direct sales business offers a lot of things that other businesses normally cannot offer. Be your own boss and determine your own salary. Set your own schedule and earn as high as you want. Drop your day job and earn millions instantly.

Really… who wouldn’t be tempted with all these, right? A lot might even actually quit their day jobs without even thinking twice!

If all of these truly apply to everyone, imagine how the rest of the world will just quit their jobs and start venturing on direct selling! Wouldn’t everyone want to be their own boss, drive a new car they didn’t have to pay for, and work only at the time they want to and still earn the income they desire? Who in their right minds would not go for such?

Well, let’s admit it. We would all want that for ourselves, but we have to be reminded of what they say, “With great power comes great responsibility”. Thus, before we take the power of freedom to choose our own schedules, income, and everything that goes with it, we must be reminded of the responsibilities attached to it.

Here are a couple of things to keep in mind:

o Success doesn’t come to the impatient. This goes out to all the businesses out there as well. Success, for sure, doesn’t happen overnight. You just can’t expect to sleep over an idea or a task and wake up with six figures in your bank account when you wake up the following day. It takes more than just hard work. It takes a lot of time and dedication, too.

o Customers are not easy to find. It takes beyond just establishing who your potential customers are. You have to actually reach them. What better way to do that than REALLY finding them? That’s what advertisement and phone calls in the world of business are for. If you don’t like the extra effort of doing that, you might want to look for another job because this surely isn’t for you.

o You need to have a system of keeping your records. Good record keeping skills are necessary. Records need to be organized right at the very start. You should not put it off at a later time, delaying will cause you more headaches than you think. So if you’re not in the habit of keeping records, you either ask for help or start a new habit.

o There’s more to direct sales than just holding parties. Whoever said that parties are the only time you have to work at your business certainly just wants to recruit you only for their benefit and not yours. Just like any other business, direct sales need hard work and time. Holding parties is only a part of direct selling and not the whole of it.

Normally, one will be tempted to purchase and have every product the company offers. If you’re a big fan of perfume and eventually become a rep for a perfume company, you will typically be allured to have every single scent there is. Although it is true that you do have to know your products and you have to know them well, you do not have to spend your income just to do so. Companies do have their samples to be given away. You have to take advantage of that instead of buying every scent you would want for yourself.

While it is realistic to assume that you can quit your day job anytime and work fulltime on a direct sales business, you might not want to do it as soon as possible. You can do it EVENTUALLY, when you have already made your business stable and profitable enough to make you want to quit your job. In the mean time, you might just want to use only your spare time to make your business grow. And when it does, that might be the highest time for you to bid you day job farewell.

Having all these in mind, never be blinded with the false offers you just might want to believe in. Everything takes time and won’t happen in an instant. If you want to be part of a direct sales company, it’s not just important to start now, it’s more important to start right.