Family’s Self-Directed IRAs Earn $100,000 Profit to Jumpstart Savings

By Brendan Hughes0 Comments

Mark K. from North Carolina was in graduate school, earning a Master’s Degree, when he purchased a small house to live in while also renting a portion to a fellow student. Despite not having any experience investing in or managing rental real estate, it was the beginning of a profitable investing strategy that has spanned more than 12 years.

“It’s something that became a passion for me,” says Mark.

The passion has generated wealth for Mark’s family today, and with the assistance of self-directed IRAs, potentially a wealthy future.

Rehab investment earns $82,000 profit – tax-free in a Roth IRA
After the first investment in graduate school, Mark purchased more rental properties in the succeeding years.

“I didn’t have a lot of money to begin, but I discovered different creative strategies to purchase rental properties, working with sellers on financing them,” explains Mark. “My goal was to create cash flow.”

Mark’s experience with real estate grew; he learned valuable lessons along the way and became a more confident investor.

“I developed relationships and participated with local investment groups,” says Mark. “My father also started investing in real estate.”

From his network of investors and from his father’s research into new investing tactics, Mark discovered self-directed IRAs and the possibility of investing in real estate with a retirement account.

“My father actually used a self-directed IRA for a real estate investment first. After I saw how the process worked and that it went well for him, I jumped in,” says Mark.

Mark rolled over an existing retirement account to a self-directed Roth IRA after finding a potential rehab opportunity. A small, three bedroom house was located in a decent neighborhood but needed a complete rehab. He purchased and rehabbed the property for $102,000.

“It needed new plumbing, wiring, pretty much a complete rehab,” says Mark.  “We found a seller in a few months and netted $82,000 in profit.”

Wife invests in storage facility – earns 28-percent return
Shelly, Mark’s wife, purchased a distressed 13-unit storage facility with her self-directed Roth IRA. At the time of purchase only one unit was leased and the property needed cleaned up. The total investment was $16,000 between the property purchase and rehab. After her IRA hired a management company, the facility has leased all but one unit. After expenses, the investment nets $4,500 profit a year (again tax-free) for Shelly’s Roth IRA.

Children combine education savings accounts – earn $8,000 profit
With three young children (all under 8 years old), Mark and Shelly know education expenses are coming in the future. They had opened 529 education savings accounts for each child, but once they found success with real estate in their self-directed IRAs, they discovered that Coverdell Education Savings Accounts (CESAs) with the proper custodian could invest in alternatives beyond the traditional market.

“With our experience in real estate, we believed we could achieve better results than stocks and bonds,” says Mark. “But the annual contribution limit for a CESA is $2,000 per child, so the challenge was finding a potential investment that they could afford.”

While driving back from a rental property he owned, Mark noticed a small four-unit storage facility on the side of the road for sale. The listing price was $10,000, but the realtor selling the property said it had been listed for a long time with little interest. Mark offered $5,000 and the offer was accepted the next day.

“My children’s accounts only had $4,000 in each,” says Mark. “I combined all three accounts to purchase the property. Each account owned a portion of it.

“After a little clean-up work, at a cost of about $1,000, I listed the property on Craigslist for sale with owner financing," he adds. "A cash buyer offered $14,000 and we closed the deal just six months after purchasing.”

To recap: Three CESAs belonging to each of Mark’s children, combined to purchase a small storage facility for $5,000 and spent $1,000 to clean it up. The property was sold in less than six months for $14,000. The three CESAs earned $8,000 in profit, shared equally between the three accounts.

Discover more about Mark and his family’s self-directed investing
You can discover more details about Mark and his family’s self-directed investing by viewing a webinar interview with Mark: Real Estate Investor Jumpstarts his Family’s Savings with Self-Directed Investing. Mark reveals even more about how he got started, what criteria he uses in finding investments, and his advice for people interested in getting started.
 
Mark K. is not an employee of Equity Trust Company. Opinions or ideas expressed by Mark are not necessarily those of Equity Trust Company nor do they reflect their views or endorsement. 

Case studies are provided for illustrative purposes only. Past performance is not indicative of future results. Investing involves risk including possible loss of principal. Information included in the above case study was provdided by the investor and included wiht permission. Equity Trust Company does not independently verify all information provided by third parties.