Ryan of Maryland recently completed his first self-directed real estate investment – one that earned him a nearly 48,000-percent tax-free return. It’s a great start for any investor, but especially one who completed the investment when he was 19.
Ryan, now 20, has already discovered the power of a self-directed Roth IRA and the affect creative investing can have on generating tax-free wealth for his future.
Head-Start in Real Estate Investing
Ryan has been around real estate investing most of his life, but he really took an interest when he was 17.
“My father has been in real estate for many years and once I decided to go into the business, he has mentored me and taught me the business,” Ryan says.
He interned at his father’s real estate rehab and rental management company to make sure that's what he wanted to do, becoming a full-time employee after graduating high school.
He and his father continue to grow their knowledge by attending seminars together. It was at a real estate investing seminar in Florida that they learned they could use retirement accounts to invest in real estate.
After opening his self-directed Roth IRA at Equity Trust, Ryan found a local homeowner who was underwater on their property and offered to help them get out of their mortgage by finding a buyer.
Ryan offered a real estate option for $10, which allows him the opportunity to find a buyer or purchase the property. He ended up finding a buyer who purchased the option from him for $4,800 – a return on his investment of nearly 48,000 percent. The purchase was completed approximately two months after he entered into the agreement.
Why Ryan Opted for a Roth
When Ryan learned about self-directed investment vehicles, he also learned the difference between a self-directed Traditional IRA and Roth IRA. A Traditional IRA is tax-deferred, while contributions to a Roth IRA are after-tax, so the growth and withdrawals are tax free – provided IRS guidelines are followed (see IRS Publication 590
for more information on Traditional and Roth IRAs).
To Ryan, it made sense to opt for a Roth IRA for his self-directed investing.
“I’m pretty young. I can benefit from the tax savings a Roth account offers,” he says, “so it’s a great retirement and savings vehicle for me.”
When analyzing self-directed account custodians, Ryan and his father researched a few options.
“We like Equity Trust’s fee structure: there’s not a cost associated with each transaction,” he says.
Ryan appreciates the customer service, especially as a beginner to self-directed investing.
“For my first deal in my IRA, I had some questions, such as what needs to be done and what needs to be signed,” he says. “I sent my questions in, they were answered quickly.”
On His Way
Ryan plans to complete many more self-directed investments in his Roth IRA – it’s just a matter of finding the right property, location and circumstances.
“I am always looking and trying to help people out with their housing needs while doing it in an IRA,” he says. “I think it is a somewhat creative and interesting vehicle and it can also pave the way for owning rental property in it one day as well.”
Discover more real-life self-directed investments: Download this free guide with 11 self-directed investing case studies.
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 provided by the investor and included with permission. Equity Trust Company does not independently verify all information provided by third parties.
Equity Trust is a passive custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust 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 tax attorney or financial professional.