Equity Trust Client’s “Just Do It” Approach Brings Success for His Clients and His Self-Directed IRA

Vern Schmidt of Ottawa Lake, Michigan always believed he could do it. And even though what “it” was changed throughout his life, he’s succeeded every time – because he promptly took action.

When he worked at his stepfather’s gas station in his teens, he believed. “I knew I could design cars as good as the ones I made repairs to,’ says Schmidt. A bachelor’s degree and a master’s degree in engineering later, he entered the world of automotive design.

After a strong career in engineering that ultimately found him working with DaimlerChrysler, he took a buyout. At age 50, Schmidt faced an early end to his engineering career but believed he could fund his present and future by investing in real estate. His own investment business and an Equity Trust Self-Directed Roth IRA later, he’s purchased and rehabbed 22 homes in approximately a year.

“It’s” Going Great

Schmidt’s Pennylane Properties, LLC uses the private bank concept (borrowing money from an individual’s IRA for investments and paying it back an amount of interest agreed on in advance) to fund the purchase of 15 homes. The remaining seven (with an eighth pending) have been purchased by his self-directed IRA.

“With all the foreclosures happening,” says Schmidt, “I’m making lemonade out of lemons. It’s not uncommon to see a profit of 75% to 80% on homes when they cash out.”

Based on the following examples, that’s a conservative estimate. Just look at some of the deals Schmidt has put together since attending the Equity University Networking Conference in October, 2009:

• His Pennylane Properties LLC purchased a distressed property for $14,000. After eight months and $22,000 in renovations, the home recently sold on a land contract (where the seller holds title to the property until all payments are made) for $80,000. Pennylane Properties will clear $40,000 when all’s said and done as it collects $800 each month at 9½% interest.
• The LLC also purchased a home for $22,000. Following $6,000 worth of renovation, it sold for $65,000 on a rent-to-own contract with a $3,000 deposit.
• Schmidt’s IRA purchased a two-bedroom, two-bath home with a two-car garage on a double lot for $20,000. After putting put in $7,000 in repairs and another $2,000 in miscellaneous items, the property sold for $65,000 on a land contract.
• Recently, Pennylane Properties took out a loan with a local bank featuring a 6.5% interest rate. It then paid off investors at 9% to 12% rates and doubled its cash flow. The LLC will retain and rent the properties.
• And here’s a new wrinkle. Pennylane Properties developed a participating loan deal with a fellow Equity Trust client’s IRA. The IRA received 10% APR for the money it lent but when the property sold for $75,000, it realized 40% of the remaining profits.

Schmidt’s business philosophy for both Pennylane Properties and managing his self-directed IRA is simple.

“I know for sure that classic, older starter homes with three bedrooms, one bath and a garage will sell to first-time buyers. The market may be bad, but they’ll sell or we can rent them – I’m open to multiple streams of income,” he says.

Guidance You Can Believe In

Schmidt jokes that he’s a firm believer in “Ready. Shoot. Aim.” But the point he’s making is significantly serious.

“I encourage people to go do it. Just don’t read books and go to seminars – use the knowledge. The first investment is always the toughest. Jump in and do it. Get started and you’ll learn as you go.”

Schmidt also offers these tidbits for real estate investors:

• Find a good Realtor who knows what you’re looking for in investment real estate (his calls him up and lets him know of those “in-need-of-repair” starter homes)
• Remember, people always want good homes – the money will be there

Going forward, Schmidt continues to walk the talk. Ultimately, that take-action approach benefits his clients, Pennylane Properties and his own IRA.

“My goal is to purchase 36 homes by the end of 2011,” says Schmidt. “I believe I can do it.”

Disclaimer: Equity Trust is a passive custodian and does not provide tax, legal, or investment advice. It does not endorse or recommend any contributor, company, or specific investments. Any information communicated by Equity Trust Company is for educational purposes only and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with your legal, tax, and accounting professionals.