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Investor Insights Blog|Investor Sidelined by Injury Discovers No Retirement Account is Too Small to Grow

Promissory Note Investing

Investor Sidelined by Injury Discovers No Retirement Account is Too Small to Grow

Fueled by misfortune, Chicago-area resident Seth discovered that you don’t need to be rich to find ways to secure your financial future.

Seth made a living as a sanitation worker until he broke his back a few years ago. Even after multiple surgeries, he physically couldn’t do the same type of work.

After learning about self-directed IRAs, he closed out his pension plan and opened a Roth IRA at Equity Trust with $13,000. The account sat without activity for a few years because Seth thought there wasn’t much he could do with his modest savings.

I was only looking at real estate and stock market investments when I found out I could invest in private companies and make a steady return. This has led me to look for more companies considering expansion, where I might be able to get a piece of or earn favorable returns.

Seth, IRA Investor, Chicago

In the meantime, Seth, who has some experience with real estate investing, lent $4,000 to a business acquaintance for a real estate deal.

Putting a Small-Dollar IRA to Work

After attending an Equity Trust educational workshop, Seth discovered that he could also loan his Roth IRA money, which would allow him to put his retirement savings to work, even with his smaller account balance. So when the same acquaintance approached him about securing a loan to expand his trucking company, Seth felt ready to make his first self-directed investment.

Seth loaned the man $10,000 for his business after reviewing his business plan and agreeing to the man’s 20-percent interest offer. Based on their past transaction, Seth felt safe with the agreement.

“After he paid me back from the original deal, he had proved himself to me,” Seth says.

Seth receives monthly payments on his loan, which are deposited back into his Roth IRA. When the loan is repaid in full, Seth’s original $10,000 will grow to $12,000 in his tax-free account.

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Seth Takes Action and Gets Rewarded

When Seth hears of someone being hesitant to complete that first self-directed deal, he responds by telling them that you have to be willing to take action, but to take an educated, strategic risk.

“You don’t want to be just throwing money out there,” he says.

The self-directed deal has opened Seth’s eyes and made him excited to discover more opportunities.

“I was only looking at real estate and stock market investments when I found out I could invest in private companies and make a steady return,” he says. “This has led me to look for more companies considering expansion, where I might be able to get a piece of or earn favorable returns.”

The size of the loan also expanded Seth’s awareness of the prospect of small-dollar opportunities, in businesses and elsewhere.

“Sometimes a real estate investment might only need $2,000-4,000 for closing costs, light rehab or just to get a deal done. You may not only get a piece of that deal and get your principal back, but you can get monthly cash flow as well,” he says. “It’s exciting that there are a lot of different possibilities out there.”

For those investors who are still hesitant or not sure how to get started, Seth recommends taking advantage of the volumes of self-directed investment education available.

“There’s a lot of information out there, all you have to do is search online,” he says, adding, “There are books and people sharing ideas of how they are building deals with small dollar amounts.”

1

Can I transfer funds from a previously established retirement plan into an Equity Trust self-directed IRA?

It is possible to transfer funds from an IRA you hold at another custodian or a retirement plan from a prior employer, provided the tax environments are the same. A traditional IRA held by another custodian needs to have its funds transferred to a traditional IRA. A Roth IRA needs to have its funds moved to a Roth IRA. Our retirement account specialists can help you determine what type of account you need to open at Equity Trust to move your funds in an approved manner.

2

Am I restricted to only purchasing residential property with my IRA?

You are not limited to residential real estate. Your IRA can hold various investment properties such as commercial buildings, vacant land, condominiums, mobile homes and apartment buildings, in addition to residential property.


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