Two residents of New Orleans, and Equity Trust clients, seized the opportunity to help rebuild the city they love after Hurricane Katrina ravaged their tri-state area in August 2005. The devastating hurricane uprooted hundreds of thousands of residents across Louisiana, Mississippi and Alabama and caused an estimated $100 billion worth of damage.
The husband-wife investors, Wayne and Alicia, were able to successfully pool the untapped capital in their retirement plans to help repair their community, while building their own retirement savings in the process.
It all began when a friend of the couple suggested they partner together to help rehabilitate one of the homes in their New Orleans community. The house had been flooded and gutted by the powerful storm. The friend, who would serve as the active investor, had a worthwhile goal but lacked the funding needed for the rehab project.
From Flooded and Gutted to a New Home
Wayne and Alicia each maintained a self-directed Roth IRA, which allows for retirement assets to be invested into alternative areas such as real estate, precious metals, tax liens, private-money loans and more. Neither had enough in their retirement accounts to complete the loan for the rehab project, so they collaborated and provided their friend with the necessary $106,000 between the two accounts (it’s possible to partner multiple IRAs and other funding sources on a single deal). The funds were used to purchase and renovate the home, in addition to paying the carrying costs associated with the property.
In just 102 days, the active investor’s team renovated and sold the property for $235,000. As agreed upon when they entered into the agreement, Wayne and Alicia’s Roth IRAs received 33 percent of the profit from the sale, while their friend received 67 percent of the profit as the active investor.Wayne & Alicia Case Study
Since Wayne’s IRA contributed 75 percent of the couple’s combined investment, and Alicia’s IRA contributed the other 25 percent of their total contribution, the proceeds returned to their respective Roth IRAs in the same proportion. The best part was that all proceeds were returned tax-free because the pair invested capital from their Roth IRAs.
Investing More into their Hometown
Not only were the three excited by their return on investment (ROI) with this rehab project, but the deal quickly inspired and funded two similar deals in the community.
Wayne and Alicia had the satisfaction of knowing their IRAs were helping to breathe life back into their beloved community, while helping the local economy — as well as their retirement savings — grow. The couple’s friend was so moved by the experience of revitalizing his own neighborhood while making a tidy profit for himself, that he established his own Roth IRA.
“Using our IRA capital to help rebuild our community in which 275,000 homes were devastated by Hurricane Katrina has been a life-changing event for us,” Wayne said proudly. “Once we renovated the first house and saw the impact, we grew more committed to the neighborhood. We kept finding new ways we could help.”
The above case study is for educational 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.